"It is the purpose of this title to require that consumer reporting agencies adopt reasonable procedures for meeting the needs of commerce for consumer credit, personnel, insurance, and other information in a manner which is fair and equitable to the consumer, with regard to the confidentiality, accuracy, relevancy, and proper utilization of such information in accordance with the requirements of this title."

A direct quotation from the U.S. Congress, the previous paragraph is the purpose of the Fair Credit Reporting Act. In short, the Fair Credit Reporting Act is designed to help protect consumers from unjust practices within the credit reporting system.

While the mission of the FCRA was a noble one, a quick look around today's credit systems shows the results have fallen well short of expectations. What follows is how the Fair Credit Reporting Act has failed to produce a just credit system for today's consumers.

Detailing the Shortcomings of the Consumer Credit Reporting System


  1. Accuracy - It is documented that credit reports contain errors but it bears repeating. Studies indicate that 79 of all credit reports include factual errors such as the same listing added more than once, incorrect dates, tradelines placed on the wrong person's credit reports, and omitted positive credit accounts.

    These same studies also indicate that 1 in 4 credit files include errors large enough to result in a credit denial.

    How just is a credit system that can cause a person to get declined for a loan or force them to pay higher interest rates than are necessary based on their actual credit risk? True, consumers can dispute these inaccurate items with the credit bureaus, but this is not necessarily easy or foolproof. Depending on the nature of the erroneous items in your credit file, correcting your credit can be a maddening and time consuming event you are forced into because of no fault of your own.

  2. Relevancy - While they may not
    say it directly, the big three credit bureaus' creation of the VantageScore is proof enough that the current FICO based credit scoring models are not as relevant as they could be. According to Experian spokesman Donald Girard, the VantageScore is "the most sophisticated, highly predictive scoring model that's available in the marketplace" and as a consequence the much more popular FICO score is less so.

    One of the flaws in the FICO score that the VantageScore tried to fix is the impact that old credit accounts have on the credit score. According to Dr. Bonnie Guiton Hill, advisor to President Bush on consumer affairs, "it is our understanding that computer models that predict credit worthiness find most information that is more than two years old nonessential." This is why newly created scoring models are starting to downplay credit accounts that are over three years old. They do not have a place when trying to accurately predict a consumer's credit worthiness.

    So why have lenders been so slow to adopt scoring models such as the VantageScore? They suggest it is because FICO is engrained in the credit system. A more cynical answer is that lenders are not willing to sacrifice the profits they make from charging higher than necessary interest on credit provided to people who are a relatively low credit risk.

  3. Proper Utilization - With how common it is for a credit score to be a gross misrepresentation of a person's true credit worthiness, the point could be made that the popularity of credit ratings in the financial market is inappropriate. But in today's society, the use of credit scores goes beyond determining the size of a loan and its interest rate.

    Employers, landlords, insurance companies and others often ask to see your credit reports. Your ability to get a certain job, rent an apartment, or get approvedqualify for reasonable insurance premium can all be influenced by your credit reports.

    Improper is a subjective word, but being passed over for a job because of completely irrelevant and potentially erroneous negative credit items in your credit files that are input into a less than perfect credit scoring model to create a credit score that is not indicative of your true credit worthiness fits the bill.