As a credit attorney, I find that most Mortgage Loan Originators and Realtors obviously want to give their clients good credit advice to fix credit report errors so they can qualify for financing or get the best interest rates possible.
You would think the Big 3 credit bureaus would also be motivated to help consumers to fix credit report errors. It just seems natural that the more consumers with good credit scores the better for everyone.
However, it may surprise you to learn that one of the best kept secrets in the credit reporting industry is that it’s actually NOT in the best financial interest of the credit reporting agencies to fix credit report errors for consumers.
So don’t be so quick to advise consumers that all they have to do is simply send a credit dispute letter to the credit bureaus and their inaccurate credit information will be corrected. It may be more challenging than you think. Consumers may have to fight with the credit bureaus to get results.
Most of you are probably already aware that the credit bureaus make money by collecting consumer credit information and in turn selling credit reports. It’s no secret that the credit reporting industry is big business. After all, the Big 3 credit bureaus are not Government entities, but “for profit” companies that earn over $4 Billion annually.
Although it’s not highly publicized, the credit bureaus also make a great portion of their profits by selling data to marketing companies interested in selling products and services to consumers with certain demographics.
For example, let’s say a local Toyota dealership wants to use direct mail to reach customers that would potentially qualify for their 0% financing program. They may want a list with information on consumers within a 50-mile radius, with a FICO credit score of 750 or higher.
The credit bureaus would then sell a list of such consumers to the Toyota dealer. This results in a “soft inquiry” on the consumers’ credit files. The inquiries are not reflected in the consumers’ credit scores, but they are listed on the consumers’ credit reports as a “marketing” type inquiry.
So here’s a good credit tip for consumers: “Opt-Out” of your credit information being sold to marketers. This helps in the credit repair and credit rebuilding process for a number of reasons, but most importantly – your personal information is kept private. Per the Fair Credit Reporting Act, it cannot legally be sold by the credit bureaus once you’ve opted out. To opt out, go to www.optoutprescreen.com. This will stop the credit bureaus from marketing your data and significantly reduce the amount of junk mail you get as well.
But here’s the most interesting part of the story…Not all Data is Created Equal.
Some data is actually more valuable than others; so the credit bureaus can charge more for it. Let’s take another look at the Toyota dealer example. The consumers in that profile have high credit scores, so they would be eligible for the 0% financing offer. The dealer gets to sell a car, but he doesn’t make any money on the financing. However, if a consumer had poor credit, the dealer could not only sell a car, but he could make money on the financing as well.
As a result, a list of consumers with poor credit is of more value to the dealer than a list of consumers with good credit. Therefore the dealer is willing to pay the credit bureaus more money for a list of consumers with poor credit.
“The worse the credit score-the more money the credit bureaus make!”
So the credit bureaus have no incentive to correct the inaccurate data in a consumer’s credit file. If their credit scores are lower, the credit bureaus make more money. It’s just not in the credit bureaus’ financial best interest to help consumers fix credit report errors. In some ways it’s like the fox is watching the hen house… But no one seems to be watching the fox!