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Credit Ratings

I have worried for the longest time about credit ratings. There are many good reasons for my fears.

To begin with, credit ratings are based solely on mathematics – the days in arrears. You are judged in a moral way by being labeled with a good or bad rating. The reason for your problems doesn’t matter. Just the days in arrears.

What this does is mix good people with bad people and calls everyone bad. Good people from all walks of life, from all income groups, from all cultural backgrounds, sometimes experience trouble – legitimate financial trouble – which often results in falling into arrears with creditors. This differs from abusers of the credit system, i.e. the bad – the irresponsible, the profligate, the fraudsters, the obsessive-compulsive shopper, the gambler, the substance abuser.

Elizabeth Warren, a United States Senator from Massachusetts and previously a Harvard Law School professor specializing in bankruptcy law, has been worried about how a bad credit rating prevents people from getting a job or renting a house. She reminds us that much of America is hard-working, bill-paying America, and has a damaged credit rating but got sick, their husband left them, their wife died or they lost their job. The credit crunch of 2007-08 brought shrinking home prices that made it impossible to sell or refinance a home. People lost their small businesses. Smaller savings left people without much cushion to ride out the tough times.

You see, trouble with your credit rating that leaves a blemish on your credit rating, most of the time, does not reflect a person’s character. Rather, it’s an ability problem. The family income has been lost or shrunk and they can’t make all of their payments. Research, according to Elizabeth Warden, has shown that an individual’s credit rating has little or no relation with a person’s ability to succeed at work. “A bad credit rating is far more often the result of unexpected personal crisis or economic downturn than a reflection of someone’s abilities.” This corroborates my 30 plus years’ experience in the credit industry.

Furthermore, she complains that “After a terrible blow like a family death, a divorce, or a life-changing disease, many people scramble to get back to work, pick up a second job, or change jobs so they can get back on their feet financially. But they are knocked back by their damaged credit rating.”

Elizabeth, along with a group of US senators, is introducing the Equal Employment for All Act to stop employers from requiring prospective employees to disclose their credit history or disqualifying applicants based on a poor credit rating. They are opposed to highly qualified applicants with bad credit can be shut out of the job market.

This was never the intended use for credit ratings and should not affect the ability of people to get a job.

Recently, I learned firsthand that some Insurance companies in Canada want you to give them permission to access your credit bureau file – in order, they say to “provide you with the best rate possible” for your insurance needs. I say B.S!  Your credit rating is NOT a reflection of your personal worth it is merely a credit industry tool – nothing more!

Say NO to insurance companies!


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