Credit

Credit is probably the biggest scam in human history. That’s a big claim, so I want to clarify a bit. I am not talking about credit in the accounting sense, credits and debits. Those are fine. I’m also not talking about the list of names that runs after a show or movie. I actually like to watch those credits. I wish Netflix and Hulu would figure that out. And I certainly don’t mean credit in terms of praise. If he’s a credit to his family, I’m good with that. I’m talking about the credit industry. I mean credit rating agencies, banks, credit cards, credit unions, savings and loans institutions, and all of that. It’s not just that the credit industry is exploitive and lies, cheats, and steals all the time. It’s not just that they do lots and lots of damage to people and society while providing mostly illusory benefits. If it were just those things, they’d be pretty much the same as other industries like fossil fuels, cigarettes, and the NCAA. What sets them apart as uniquely evil is the way they have convinced most of the world that good credit equals success at life while bad credit is failure.

The Federal Trade Commission’s (FTC) website, consumer.gov, says:

Later on they say it again like this, “Your credit history is important. It tells businesses how you pay your bills. Those businesses then decide if they want to give you a credit card, a job, an apartment, a loan, or insurance.” I don’t know why they mention apartments in the second one, but not the first, but they are clearly saying that a credit report is important to have. It is possible to live without loans and credit cards, but almost all of us need jobs, insurance, and apartments (housing).

Given that the credit report is important to have, it raises the question of how a person gets credit. The FTC’s answer is, “You need credit to get credit.” They do explain it a little more. They say that utilities will sometimes put information in a credit report, but otherwise, you need a credit card or loan or something so you have a credit history so you can have a credit report. That, by itself, is slam-dunk proof that credit is a scam. It seems obvious to me, but I want to explain it anyway.

At first glance, this almost seems plausible (from the FTC again), “Businesses look at your credit report to learn about you. They decide if they want to lend you money, or give you a credit card. Sometimes, employers look at your credit report when you apply for a job. Cell phone companies and insurance companies look at your credit report, too.” In other words, they look at your credit report to determine your credit worthiness. They want to know how risky a person is before they give them loans or a job or an apartment. The problem is, credit history is neither the only nor the best way to learn about a person. If a business wants to know if you’re at risk of not repaying a loan, they should be looking to find out if you are responsible with your money. Not having credit could be proof of that responsibility.

Imagine someone who lives in a city. She rents a room in a friend’s apartment because it is cheaper than being the leaseholder. She pays her portion of the utilities, but they are not in her name. There is public transportation readily available, so she doesn’t have a car. She works full time. She always pays cash as a way of budgeting. She even has enough leftover at the end of the week to put a little money in a savings account. Her job relocates to the suburbs, where public transportation is difficult, if not impossible. So, she decides to buy a car and applies for a loan. She may not get the loan because she doesn’t have any credit history. And if she does manage to get the loan, she will be penalized with a high interest rate. Everything about her shows that she is stable, reliable, trustworthy, and honest, but the credit industry doesn’t pay attention to that. It’s not actually about an individual’s riskiness. All the credit industry does pay attention to is what benefits the credit industry.

The thing that benefits the credit industry most is getting more and more people into the credit system, the deeper the better. The lenders, employers, landlords, etc. make their money by giving people credit (aka putting people in debt). They use the credit reporting companies to make decisions about credit because it is cheaper than hiring people to investigate, study, and learn about potential clients well enough to assess their risk. The credit reporting companies make their money from lenders, employers, landlords, etc. checking people’s credit. It’s a positive feedback loop. By forcing everyone to have credit in order to build credit, and making credit a component of jobs and housing as well as lending, the credit industry has trapped us all.

Society starts to pressure us into credit early. This piece from CNBC is pretty typical. They flat out say that eighteen is the best time to get a credit card because that’s the earliest age you can get a credit card. They talk about how credit cards can effectively build a credit history and raise a credit score. It is just taken for granted that these are good things. They do acknowledge some negatives that come with credit cards. They mention debt, but the real reasons they say a person shouldn’t get a credit card is if it will hurt their credit score and make future credit harder to get. When you think about how many ways debt can ruin a person’s life, focusing on the credit score is pretty messed up.

Some other things that show the credit industry to be a scam:

1. Checking your credit can hurt your credit score.
2. Applying for credit can hurt your credit score.

• Neither of these activities demonstrate a person may be higher risk. The industry is just interested in keeping people in the dark, and potentially charging higher interest rates because of the lower credit scores.

3. Experian advertises that they can raise your credit score just by going to their website.

• Clearly, credit scores have no connection to reality if Experian can just boost your score as a sales gimmick.

4. High risk borrowers can still get credit, just at exorbitant interest rates.

• The only risk that the credit industry worries about is the risk that they won’t make a profit. They are happy to lend you money, knowing full well that you’ll default, as long as you don’t default before they’ve made their money. This may be worse than a bar tender serving alcohol to the underage driver.

I’m not going to go as far as Jesus and say we should get rid of credit altogether. But we need to rebalance. Credit should be a tool used by people. It is currently an entity using people as tools. The most important part to fix is the companies that track credit history and give credit scores need to stop benefitting from people being in debt. They need to be independent and unbiased. It’s a pipe dream to think that a person can live a normal life, fully participating in the modern economy, without credit. It’s a scam. It’s a racket. If anyone outside of financial services tried a similar set up, we’d call it extortion.