I’m a good debater – I can make an argument out of anything, which is one of the reason I enjoy writing. Recently, I listened to a conversation over whether or not the current credit scoring was fair to the consumer. I argued both sides successfully to the frustration of my audience. Which is the right viewpoint? Well, both, I think.

In order to illustrate my point, I’ve decided to write two articles explaining each side, positive and negative. The first part, arguments favoring the system will be given today. The arguments against the system will be given tomorrow.

The main reason that the credit scoring system can be regarded as fair is because each person controls his/her own credit rating. Your borrowing and payment habits are what dictate your credit rating. If you abuse your credit, your credit rating reflects the same. However, if you are a responsible credit user, your credit rating will be favorable.

You must take some responsibility for your credit rating. I do have to say that the people who complain the loudest are the ones who have bad credit. People with good credit hardly ever complain as good credit has great rewards. Good credit allows you to turn on utilities without a deposit, get a cell phone easily, get a credit card with no annual fee, open a checking account, get a low-interest rate auto loan, rent a car and much, much more.

The system was developed to save lenders time when making a decision on whether or not to issue credit. Lenders need a system that can help them determine whether a person is a borrowing risk. By using the current credit rating system, lenders have some kind of barometer for measuring credit risk.

I was a loan officer for a mortgage company in the early 90’s and the scoring system was not widely used. A loan officer like myself would have to read a raw credit report and determine the borrower’s credit, but this was an estimation only. There was a chance that the underwriter who made the final decision about the borrower’s credit worthiness would not agree with you and turn down the loan. Telling a borrower that they have been turned down after telling them they were pre-approved is not a fun experience.

The current credit rating system conveniently compiles all of a person’s credit history and uses them to create a nice, neat number that lenders use to make lending decisions. A mortgage professional can more confidently tell their clients that they are pre-approved for a loan based on their credit. You can also get “instant” approval for a credit card when applying online due to the scoring system.

Despite the positives – there are some sticking points with the credit scoring system:

• People don’t understand why lenders use the system of credit ratings.
• Consumers don’t think that prior problems with paying debt should reflect against them after things have gotten better.
• They think that than rather of basing their decision on the credit score, lenders should consider other things.
• The main aggravation for an individual is probably the inaccuracy of the credit report.

The system is not perfect, but it is fair. I have had my credit score reduced due to negative information being placed in my credit file that was not mine. I had to get the information removed by contacting the credit bureaus. I would be lying if I said that the information was immediately removed. In fact, it took a couple of months to get the information removed. I was not happy, but mistakes happen.

What is your opinion of the credit scoring system? Tell us by leaving a comment!

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