Credit? What Credit?

Talking Business - Borrowers Suffer From the Tyranny of the Credit Score - NYTimes.com:

In fact, FICO scores are not the best predictor. The amount of equity a person has in his home, his debt-to-income ratio, his job stability and his cash reserves are all better predictors than credit scores, according to Dave Zitting, the chief executive of Primary Residential Mortgage, a leading mortgage lender. And yet, he said, “The credit score has become the line in the sand for the banks.”

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You would think, given the critical importance of an accurate score, that there would be rules about the information that is submitted to them. There aren’t. Lenders can submit information about your credit history to one of the bureaus, all of them or none of them. Some of them turn over information right away; some take months; some don’t do it at all. Some are sticklers for accuracy; others are sloppy. The point is that the credit score is derived after an information-gathering process that is anything but rigorous.

Or, rather, I should say, the three different numbers that are derived. Almost always there is a difference — sometimes a big difference — in the credit scores generated by the three bureaus. (Which, when you think about it, is another indicator of how haphazard the process is.) What happens then? I found a Web site called lendingart.com, which listed every big mortgage lender’s credit score requirements. The lenders all said that if two credit scores differed, they took the lower score; if there were three credit scores, they took the one on the middle. CitiMorgage, in its description, said that if a borrower had one score of 691 and another of zero, zero was the operative score.

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Currently, TransUnion said, I am an employee of Rite Aid.

Rite Aid? I know, I know — it is supposed to be up to me to catch their mistakes (which is also why they don’t have to care about the mistakes.) But what I find incredible is that we have imbued credit scores with these magical predictive powers — and yet the companies coming up with the scores can’t even get the borrower’s address and employer right. It would be funny if it didn’t matter so much.

This was the week, of course, that President Obama signed the financial reform bill into law, which calls for the establishment of a new consumer financial protection agency. The credit scoring business would certainly seem to be a worthy area for the new agency to dive into.

Why don't banks just honestly say "Please don't ask for credit as a punch in the mouth often offends" instead of screwing around with us?