Financial Diagnosis: The Effect of The Credit Rating System on How We Feel About Ourselves

With almost every meaningful institution now committed to free market self-interest, Americans inhabit a culture of competition, inadequacy, anxiety, and low self-esteem. A person’s value in this culture solely derives from the ability to make profits. This is not a recipe for happiness; rather, it is a recipe for anguish and servitude.

For what purpose does the free market economy inflict psychological distress? Quite simply, because those with wealth in our society want to keep their power, and an anxious population ensures their position. With deregulation, wealth has steadily funneled upward into the hands of the few, thanks to the labors of everyone else, who now work for less pay and poorer benefits. At the same time, those who work for the wealthy struggle under the illusion that they, too, have a chance to “succeed.” This fool’s quest, in turn, leads to discontent and frustration on a colossal scale.

In brief, modern America’s free market economy has an interest in keeping people anxious and insecure. Only their economic fear keeps them coming to work for their wealthy employers. The “American Dream” offers a faint gleam of hope, but this, too, is an illusion intended to keep people from giving up on a rigged game.

Most Americans face a lifetime of financial obligation in the free market. It is their responsibility to pay their bills, including bills for staples like education and health care. To get a crack at the “American Dream,” most go into debt. And all around them, they face enticements to buy things to make them happy–on consumer credit.

America is a nation of debtors. From impoverished college graduates to overextended credit card holders, almost no one escapes debt’s shadow. The wealthy get richer by loaning money, charging interest and — in many cases — selling their accounts to other creditors for a fee. In the process, they not only guarantee an endless income stream, but they also transform the entire population into financial vassals.

Like feudal barons, creditors in modern America expect devotion from their vassals. In this sense, debt cements the social order. It brands the debtor as servant and enthrones the creditor as master. The law supports the master, empowering him to take harsh action against his servant if he does not honor his obligation to pay. And it relegates the debtor to a lifetime of insecurity, inadequacy, fear, and resentment. If he does not honor his master, he loses his wages, home or worse.

And the free market does not stop there. It has a ruthlessly efficient way to brand its vassals: The credit reporting system.

Few economic phenomena wield such destructive psychological influence on Americans as the credit reporting system. It represents a private tyranny, a secret cartel that assigns numbers to its subjects, boiling them down to a crude probability representing whether or not they will pay their bills on time. While the free market causes anxiety, hopelessness, low self-esteem and anger in a general sense, the credit reporting system does so in a very specific, tangible way. Through credit reporting, those ensnared in the free market do not just intuit that they are inadequate; they get a score telling them just how inadequate they really are, down to the last decimal.

All Americans stress over their credit rating. But very few understand what it is, who determines it, and how it arose. What exactly is credit reporting? What is the credit score? It is no accident that few people know how credit reporting works; it wields psychological influence precisely because it is inscrutable and secret. Like a modern day Inquisition, the credit reporting system carries out clandestine investigations, makes clandestine judgments, and circulates its quasi-official findings to anyone who will pay its fee.

In this light, it is no wonder that Americans fear their credit rating: They have almost no control over it, they do not really know who formulates it and — for all concerns and purposes — it determines their financial future.

Most Americans fear credit reporting in the same way they fear government power. Just as a person caught in the criminal justice system feels overwhelmed by an incomprehensible institution with power over life and property, so too does a person struggling with credit scores feel lost in a mysterious system with power over his economic life.

Yet there is a key difference between the criminal justice system and credit reporting: The government has no role in credit reporting. That dreaded credit score is not a criminal sentence; no State authority empowers it.

Instead, the credit score results from three private, mammoth, mysterious “credit bureaus” that make astronomical profits collecting — and selling — every conceivable piece of financial data about everyone in the United States. This process is called “data mining.” These bureaus are not government agencies; they are private businesses selling a valuable product to other private businesses, like any other participant in the free market. They do not wield State power, but given their influence on everything from getting a home loan, a professional license, a job, or an apartment lease, it certainly seems as if they do. Worse still, the credit score does not just permit or forbid economic activity. It literally brands people with an unpredictable number they will carry as different digits for their whole lives, just as a criminal carries the stigma of a conviction, or as a “mental patient” carries the stigma of a diagnosis.

How did this happen? How did these corporations gain so much government-like authority over such vital parts of people’s lives? It is a legitimate question, and one that demands an explanation.

Credit bureaus began as adjuncts to the financial industry. They had a simple purpose: To help banks determine whether it was worth the risk to disburse money to a person applying for a loan. Like any self-interested participant in the free market, a bank wants a profit. To secure that profit, it has to assess every conceivable threat. When it comes to loaning money to someone, that “threat” is the borrower:

What kind of person is he? Will he pay the money back on time? Will he honor his obligation to the bank?

In essence, a bank wants to know that it will make money on a transaction. And to feel comfortable in that knowledge, it has to know what kind of character it is loaning money to. To slake banks’ desire to guarantee profits from loans, credit bureaus entered the “data collection business.” The only way the bureaus could certify that a particular applicant was “creditworthy” was to determine his “financial character.” And to do that, they had to amass as much information about the person as possible. They had to examine the applicant’s bill-paying history, his financial status, whether he had outstanding debt, whether he had borrowed money before, whether a court had ever entered a judgment against him for a debt. In short, they had to look at the past to decide how he would act in the future. They had to predict how he would honor his creditor today based on how he had honored his creditors yesterday.

To make their predictions, credit bureaus in turn employed information tributaries, so-called “data furnishers” — other banks, creditors and debt collectors — that streamed all kinds of information to them about potential borrowers. In most cases, this meant tracking all their bills, all their financial transactions, and — most importantly — whether they ever paid late, or missed a payment.

Private businesses all too readily supplied this information. After all, in the free market, those with power (like creditors, employers, landlords and banks) have an interest in maintaining their position by guaranteeing profitable transactions. It made sense to share information about consumers so they could maximize their chances to make profits in the future from the “right people,” namely, people who paid their bills on time, every time, no matter what. That’s the kind of people they could do business with. A person with a good credit rating was not just a “good person,” he was a sure bet, too.

But these “data furnishers” did not just supply financial information to the bureaus. They also supplied non-commercial facts, such as whether an individual was married, homosexual, communist, had a college degree, or carried on extramarital affairs. All these “facts” went into the bureau’s “file” on the applicant, and these “facts” supplied the basis for assigning an ominous “credit score” onto him through an elaborate, incomprehensible algorithm.

Equipped with the score, the bank could assess whether the applicant posed an acceptable risk. It could then safely proceed with the loan, secure in the knowledge that it would make a profit.

Not surprisingly, credit reporting and credit scores became immensely popular among creditors. Here was an easy, ostensibly objective way to reduce every person on earth to a number that could tell them whether he would honor his obligations on time — and guarantee their profits. Faced with greater demand, credit bureaus grew in scope, ultimately coalescing into the three titans of modern American credit reporting: Equifax, Experian, and TransUnion.

It did not take long for other free market barons to see the potential in credit ratings. What began as a calculation to help banks assess whether they could make a profit on a loan soon branched into other economic sectors. Soon, employers, landlords, State licensing authorities, and insurance companies began buying reports from credit bureaus. The bureaus — and the credit score numbers they peddled — assumed the role of “moral guarantors” for anyone who would pay their fee. Their scores, they said, could tell you not just whether a person would pay their rent or insurance premium on time, but whether he was a “moral person.” From this perspective, what a makes a person moral is whether he honors his obligations to his creditors: On time, every time, with no excuses or explanations.

In essence, the credit score coopted morality, equated it with economic loyalty to creditors, and passed it off as ethics.

Now, credit scores dominate American life. Before hazarding a transaction with people struggling to make ends meet in the free market, those with economic power want to see a credit report. Try to get a job, you need a credit report. Try to get an apartment, you need a credit report. Try to get a home loan, you need a credit report. Try to get a cell phone plan, you need a credit report. Try to get insurance, you need a credit report. Try to get on a payment plan to pay for dental work, you need a credit report.

Woe to you if your “score” is poor. You will not get the goods and services you need. You have been branded a “credit risk,” someone who will not honor his obligations to his financial master. You are not worthy, you are worthless, and probably immoral and unethical, too.

But God bless you if your “score” is good. You will get all the goods and services you need. You have been idolized as a “good debtor” who steadfastly honors his financial masters in all situations. That makes you worthy, moral, and good. After all, you pay your bills on time, every time, no excuses, no explanations. Those are the economic qua ethical values creditors want to see in their vassals.

Is loyalty to rapacious creditors really what makes a person “good” in our society? Is human worth and morality truly determined by a scale from 300 to 850? Should access to vital goods, services, and opportunities depend exclusively on a biased algorithm that arises in secret, with only limited opportunities to challenge or change it?

It is no wonder that credit scores cause such anxiety in American life. If you score poorly you won’t get a job, apartment, loan, or house. And at the same time, you must bear the stigma of “the person with bad credit,” a status akin to leprosy or insanity: No creditor will go near you.

Yet all the negative emotions associated with credit reporting mean nothing to the free market. From the free market’s perspective, people are potential profits. It cares nothing for their happiness or self-esteem. It simply wants to know whether they represent reliable revenue. Credit scores provide information in this regard, and that is all a creditor or landlord wants to know. In the free market, people are not unique individuals with hopes, dreams or — perish the thought — circumstances that might make them miss a bill payment once in a while. No, they are servants expected to tender their tributes to their economic lords. And lords do not want unreliable servants. They want their tribute the first time, every time.

In this light, we see how the credit reporting system reinforces the culture of inadequacy and unhappiness that drives the modern American free market. Most Americans cannot escape debt, nor can they make it through life without applying for jobs, renting apartments, or buying homes. In all these pursuits, they must submit themselves to the credit bureaus, opening themselves to secret investigations that brand them with numbers expressing judgment not just on their financial ability, but on their character, too.

It is no wonder that so many Americans live in fear of credit reporting, not to mention anxiety, resentment, and helplessness. There is little they can do about the credit bureaus and their procedures. After all, the bureaus assemble their data in secret, beyond scrutiny, without notice or an opportunity to be heard. If the bureaus report something inaccurately, the damage is done; it can take years to correct errors in credit reports, if at all. Although legislation has mandated that all Americans must have free access to their credit reports, the bureaus have either obscured that right, or freighted it with so many restrictions and inducements to pay money that it is barely worth the effort (i.e. the 2005 Experian case establishing recurring subscription as a condition to getting a “free credit report”). Even if a consumer manages to correct an error in one bureau’s report, there are still two other bureaus that might be selling inaccurate information to employers, banks, and landlords. And that information could determine access to essential goods and services. This is a recipe for helplessness and fear.

Credit reporting also unfairly conflates devotion to one’s economic betters with moral integrity.

In this sense, credit scores shame Americans into living their lives to maintain their credit numbers. “Bad credit” is a stigma as rueful as “criminal” or “crazy,” and no one wants to go through life with a scarlet letter. To avoid that fate, many Americans refuse to take risks with their money, live obediently, and do what their creditors tell them. They refrain from using their money for self-development or creativity, fearing that missing a payment to some creditor will tarnish their names for all time. They might even pay an erroneous or disputed bill, simply because it’s not worth taking the chance that it will go to collections and ruin their credit score. In debt-addled America, having a poor credit score is a very real danger. It limits access to everything from health care to employment. It is no wonder that Americans fear it, and live their lives to make sure it does not fall.

In effect, credit scores have locked most Americans into a life of blind economic servitude. By conflating morality with economic loyalty to creditors, most Americans truly believe that their credit scores tell them “what kind of people they are.” In this way, credit scores not only coerce them to live their lives to pay their creditors, but also force them into anxiety, inadequacy, and hopelessness. Combined with the fact that it is extremely difficult to “restore” a negative credit report, it is easy to see why many Americans feel depressed about their scores. They must bear their shame for a lifetime, confused as to whether their indentured financial performance makes them a “bad” person.

Viewed broadly, we see how credit scores work alongside other normalizing influences to curtail individuality and reduce the population to economic servitude. Just as modern psychiatry brands those dissatisfied with allegiance to free market life as “mentally ill,” so too does the credit reporting system brand those who do not devotedly honor their economic betters with “bad credit scores.” These “diagnoses” are one in the same: They proceed from those in power against those who behave in a way that frustrates power’s purposes. Just as the “mentally ill” person does not act in a way that serves the free market — whether through creative eccentricity, or some other refusal to live “normally” — so too does the “person with bad credit” not act in an obedient way–namely, to enrich his creditor at all costs. In both cases, psychiatry and credit reports punish the “deviant” for “rebelling” against power, heaping disadvantages and stigma upon him for his recalcitrance.