"It is the purpose of this title to require that consumer reporting agencies adopt reasonable procedures for meeting the needs of commerce for consumer credit, personnel, insurance, and other information in a manner which is fair and equitable to the consumer, with regard to the confidentiality, accuracy, relevancy, and proper utilization of such information in accordance with the requirements of this title."

In the words of the U.S. Congress, the previous paragraph is the purpose of the Fair Credit Reporting Act (FCRA). In summary, the FCRA is designed to help protect consumers against unfair practices of the credit reporting system.

While this goal is an admirable one, a quick survey of today's credit systems shows the actual results have ended up short of expectations. What follows is how the FCRA has been unsuccessful in producing a fair credit system for consumers.

Three Failures of Today's Credit System

1. Accuracy - It's well known that credit reports contain errors but it is worth repeating. Recent studies show that almost 80 of credit reports contain errors such as duplicate listings, wrong dates, tradelines added to the wrong credit reports, and positive credit accounts that are not included.
   
   These studies also show that 25 of credit files contain inaccuracies significant enough to cause outright denial of credit.
   
   How fair is a credit system that can cause a person to be declined for credit or force them to pay higher interest rates than are necessary based on their actual credit risk? Granted, consumers have the right to dispute these erroneous listings , but this task is not always simple or foolproof. Depending on the types of inaccurate listings on your credit reports, credit repair can be a frustrating ordeal that you are forced into.


2. Relevancy - While they do not communicate it directly, the credit bureaus' creation of the VantageScore is evidence enough that the current FICO based credit scoring formulas are not as relevant as they could be. According to Experian spokesman Donald Girard, the VantageScore is "the most sophisticated, highly predictive scoring model that's available in the marketplace" and as a consequence the much more popular FICO score is less predictive.
   
   One of the shortcomings in the FICO score that the VantageScore tried to address is the importance that very old credit listings have on the credit score. According to Dr. Bonnie Guiton Hill, advisor to President Bush on consumer affairs, "it is our understanding that computer models that predict credit worthiness find most information that is more than two years old nonessential." This is why newly created scoring models like the VantageScore are beginning to downplay credit information that is over 3 years old. It does not serve to accurately determine your credit risk.
   
   So why has the financial community been so slow to accept credit scoring models such as the VantageScore? They say it is because FICO is engrained in the credit system. A more cynical answer is that these lenders are unmotivated to sacrifice the huge profits they make from charging higher interest rates on credit granted to consumers who are actually a low credit risk.


3. Proper Utilization - Given how common it is for a credit score to be a misrepresentation of a person's credit risk, it could be argued that the pervasiveness of credit ratings in the financial market is improper. In today's society, however., the use of consumer credit scores goes far beyond deciding loan amounts and interest rates.
   
   Employers, landlords, insurance companies and others frequently request to see your credit score. In today's society your ability to be considered for certain job, rent an apartment, or get approvedqualify for reasonable insurance premium can all be dependent on your credit score.
   
   Improper is a subjective term, but getting passed over for a job because of irrelevant and possibly inaccurate negative credit listings in your credit reports that are plugged into a flawed credit scoring formula to produce a three-digit credit rating that is not indicative of your credit risk fits the bill.