06/25/2010 02:14 pm ET | Updated May 25, 2011

The Death Squad of the Consumer: the Credit Scoring Agencies

2010-06-25-howtoimproveyourcreditscore.jpgIt is rather strange that, in the fury of the abuses by credit card issuers, little attention has been paid to those who, on behalf of the banks, have been granted the extraordinary right to kill any consumer's creditworthiness. Contrary to what Business Week published last week, it does make or break your ability to get credit.

The denial of the banks is explicit: if they decide not to grant a credit card or a credit increase, the letter does not even allow the consumer to contact the bank. All it states is the whereabouts of Equifax, Experian or TransUnion. To reach the banks, one needs to file a complaint with the Comptroller of the Currency. At no moment in time do they assume responsibility for any credit decision: anybody who tried to argue with a credit scoring agency will tell you that it is close to impossible and all you get is legal verbiage and no explanation.

Over the years, the system got even worse: the three of them are now selling (for a fee of course) the wonderful advantage of having their three credit scorings. Since they use the same data, it is completely useless. It is sheer collusion between the credit score providers.

The real issue is that recently, unless a consumer is in the top bracket (750 points or more) it is impossible to renegotiate a home loan, get a new loan, increase a credit limit or even get a new credit card. It is the consumer's individual creditworthiness that is at stake. They are a firing squad and they, together, in a suave motion, condemn you to financial death as surely as an execution.

When one starts looking at the criteria, the matter gets worse. If a consumer who believes he or she is overcharged by the bank and has a substantial balance, receives an offer from another credit card issuing bank at 0% for a year, the rational decision is to apply for such card. That is in fact dangerous.

Any time a financial institution is getting your scoring, it hits your credit scoring negatively. The argument is that the consumer wants to increase his or her indebtedness. This is the most outrageously malevolent interpretation aiming at ensuring the credit card user is not trying to get the best deal. The escape against that is to multiply credit cards, and therefore reduce the average usage rate: does it make sense?

The second part, while slightly more justifiable, is also worrying: credit cards are made to be used. The usage of the credit card penalizes the credit scoring. The argument is that if the cardholder increases the usage, he or she has lesser options.

As to the cost of the credit cards, which are notoriously outrageous, they are the best way to strangle the consumer, reduce growth and ensure that the economy will never really pick up. The consumer agency needs to put very high on its priority list the monopolistic structure, manipulated by the credit card issuers, who represent together the most lethal weapon against consumers.

Contrary to most other countries, banks in the United States do not lend money to consumers on a personal loan basis at "normal rates". They prefer to strangle them...and then claim that there are too many failures. The firing squad is often responsible for the death of a perfectly livable human being.

As to the transparency, don't even dream: whoever owns those businesses is only interested in milking the cow. Who cares? Certainly not the Federal Trade Commission/ Credit Reports and Scoring in charge of protecting America's consumer. Like most Government agencies, they are sleep. They are part of the Federal trade Commission...and amply justify the need for a new consumer protection agency focusing on financial abuses.