The phrase ‘credit score’ or ‘credit check’ will be familiar to anybody who has ever rented a house, opened a new bank account, bought an expensive item on finance, or applied for a loan. It is one of those things that has become an accepted part of adult life, even for those who don’t fully understand what it means to be ‘credit checked.’ It is just another hoop to jump through when trying to make a big purchase or stay on top of your finances.
The problem is that this ubiquity encourages consumers to be complacent with their money. In the same way that most of us stick doggedly with one energy provider, even though we know that regular switching is cheaper, most people simply don’t question the true purpose or value of credit checks and scores. It is this laissez faire approach that allows the leading financial giants to make a lot of extra profit.
Introducing the Experian Credit Report
Experian is currently one of the most popular credit score providers in the world. It offers consumers personally calculated credit reports and scores, as a way to help them manage their finances better and stay informed about how their financial decisions are affecting their credit status. The Experian Connect Credit Report and Score is a very lucrative service for the company, as it maintains the details of a 220 million registered customers in the US alone.
The basic idea behind paying for a Connect Credit Report from Experian is that it provides customers with a snapshot of their financial situation. This is useful for a number of different reasons. For example, you might be interested in improving your score and want to know which credit decisions are dragging it down. Or, more importantly, you may be planning to apply for a mortgage or a loan and want to reassure yourself that the request will be granted.
The Complex World of Credit Scoring
Now, this is where the big problem with the Experian Connect Credit Report lies. The implication – and the products are marketed as such – is that this kind of third party credit score has a direct impact on whether or not you’ll be accepted by a lender. This is why millions of consumers pay for credit reports every year; they fall prey to the misconception that these companies have any ties with official lenders at all.
The truth is that they do not. Experian, and credit score providers like it, are not affiliated with conventional lenders. The credit report that you purchase and receive is never seen by loan companies, banks, or other financial vendors, contrary to popular belief. Moreover, the calculations used to produce the Connect Credit Report are not even the same ones employed by official lenders to verify the legitimacy of credit applications.
Why a Perfect Rating Isn’t Everything
So, it is perfectly possible for a person with a ‘Perfect’ score on their Experian Connect Credit Report to be turned down for a loan – and vice versa. The idea that there is a universal and homogeneous system of commercial credit scoring is a myth that has been perpetuated by these businesses to convince customers that they need to pay for credit checks. When, in reality, the ‘credit checks’ that are being performed by landlords, banks, and other lenders are something altogether different.
On the high street especially, customers can end up falling prey to clever marketing ploys and buying financial products that they don’t actually need. Most don’t realize that these services are run on algorithms. In other words, predictions are made about the typical customer and the credit scores are then based on this narrow set of characteristics. This is a problem, because the algorithm for, say, a loan shop on the high street is significantly different to the one used in an established high street bank.
Playing a Game of Algorithms
The factors that indicate risk for one lender might be completely different for another and this applies to the Experian credit reports too. The commercial credit checks provided by these agencies don’t usually take into account details like annual salary or financial history; they simply base their numbers on averages and probabilities. Perhaps most crucially, they do not consider the specific qualities that high profile lenders desire in their customers.
All of these revelations naturally lead to one question; is the Experian Connect Credit Report (and similar products) a scam? Are these companies deliberately misleading consumers when it comes to the true influence and value of their services? Well, the answer depends on your perspective. From a legal standpoint, Experian is operating completely above board. It is careful not to make any claims about its credit checking capacities that don’t add up.
A Question of Ethics and Responsibility
From an ethical viewpoint, however, the issue gets a little murkier. Your opinion on its viability will largely depend on how much responsibility you believe financial vendors have towards their customers. Namely, it is okay to allow consumers to believe that commercial credit reports have any impact on lending decisions, just so long as you don’t explicitly tell them this yourself? Should providers be obliged to point out the differences between these commercial credit checks and the private checks that are carried out as part of requests for finance?
It is an interesting question and one that is relevant to anybody who has ever purchased or considered purchasing an Experian credit report. While the score isn’t entirely random – the final picture is based, at least partly, on some of the information that customers provide – it should not be viewed as a comprehensive or exact answer to queries about lending. Your Experian Connect Credit Report will not directly contribute to the outcome of any judgements.
The Final Word on Commercial Credit Scoring
Ultimately, the best way to think of it is as a guide. It can give you a general idea of whether or not your financial status is healthy, particularly if you are on either end of the spectrum. For example, if your score is excellent, there is a good chance that the system has placed you in the right category – and vice versa. If you get a very poor rating, you should dig deeper into your finances to try and find out which factors are bringing it down.
What you should not do is think of the Experian Connect Credit Report and Score as a definitive deconstruction of your financial status. It does not take into account all of the factors that an official lender would and it is not passed on to these financial bodies. It is a commercial product and you are the only intended user; keep this mind when deciding whether or not to invest in commercial credit scoring products.
Written by Garrett Parker
Read more posts by Garrett Parker