Pete the Planner and Why Credit Scoring is Changing
Each morning I search a variety of news sources for updates on the credit industry. It's amazing what you find, especially on the "quick fixes" for credit, but I found a recent article written by Pete the Planner for USA Today regarding a consumer's request to learn more about fixing their credit through a "Credit Consultant".
The scenario breaks down like this: the consumer was told to pay a Credit Consultant $500 to get his 595 score to a 620 in 30 days. He did not feel comfortable doing so, and asked Pete the Planner if it was a good idea.
What was Pete's response? No. Not a good idea.
Normally, I would agree with Pete in this situation. I'm an advocate of finding real solutions to consumer credit challenges, and any Credit Service Organization or "Credit Repair" company should know better than to entice consumers into quick fix schemes.
However, as the article gains momentum, I realized that Pete may have missed the mark on "why" the client should avoid paying the $500 to a Credit Consultant. In Pete's opinion, the consumer shouldn't pay to fix their credit so that he can buy a home. Why? Because it is irresponsible for them to own a home if they have a 595 credit score. At one point, he even says "Here’s what I know about people with 595 credit scores: The credit score is the tip of the iceberg. Are the factors that helped create your low credit score fixed, or are they swept under the rug?" (there's more) "If your problems were fixed, your credit score would likely be higher and you wouldn’t be paying someone five C-notes to make them look fixed"
Unfortunately, this is grossly misrepresented. Pete, like many banks and lenders, look at consumer's credit scores like a child's elementary report card. A simple ranking system of A,B,C,D, and F doesn't adequately identify the variables that led to a students poor grade. Did the student recently change schools? Are there problems at home? Do they have difficulty getting to school on time? Or are they just simply bad student?
Similar to an elementary report card, your credit score is your financial grade. The big difference? Unlike your elementary school teachers, the companies in charge of maintaining the data that factor into your credit score are in the top three of overall complaints filed with the Consumer Financial Protection Bureau (primarily for FCRA violations). In addition, your elementary school teacher doesn't use multiple, secretive grading models with varying factors and expect you to know how to get an A with each one.
To state that a prospective buyer with a 598 credit score shouldn't buy a home is missing the point. So much so that FICO, VantageScore, and financial institutions such as Lending Club, SoFi and more are finding ways to make better decisions and get more information on the variables and circumstances that accurately reflect your financial risk as a consumer. There are even members of congress that are taking action that reinforces the point that consumers with low credit scores aren't always, as Pete the Planner states, sweeping their credit problems under the rug.
Consumers face an uphill battle with their credit scores. A lack of promoted credit education combined with the impact of what is now normal life events such as divorce, job loss, medical emergencies and more keep consumers behind due to their credit scores. Pete the Planner is not wrong for giving consumers advice to avoid quick fix credit schemes.
He just happened to do so with the same tone and advice that keeps consumers sheltered from finding solutions to their credit challenges entirely.