You are not human, able to make decisions and be responsible, rather just a dumb number.  So say banks, credit bureaus, and the government.

Seventy years ago, a person was taught it was good business sense to know a local banker on a first-name basis.  Many persons established checking accounts in their teens.  If they had enough good work experience and the banker knew them well enough, the banker might not ask parents to cosign on the first personal or homeowner's loan.  A banker's knowledge of the person's reliability was key.  And the bank often kept the loan in its portfolio.

Today, fill out paperwork online, and the bank or mortgage processing company will look at your credit score to decide whether to proceed or not.  The loaning institution doesn't know you, and you don't know it. 

Why are they concerned about your score?  Simple.  The Federal National Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage Corporation (Freddie Mac) requires a score above 620 if it is to purchase the loan.  Today, few loan-issuers retain the loan; they sell to Fannie or Freddie.

So how is the score determined?  Nobody knows.  Ask your bank if they know the algorithms used by the three primary credit agencies: TransUnion, Equifax, and Experian.  Your bank or loan mortgage firm probably won't have a clue, and they couldn't care less.  The bank or mortgage company wants to turn the loan around as quickly as possible.  It wants cash so it can make another loan.

The credit agencies would like you to believe they use sophisticated algorithms.  Maybe, but it appears that much of their information is skewed heavily toward collection banks who process credit card receipts and merchant payments. 

A friend purchased an appliance online.  The payment was made based on the invoice amount appearing on the shipping document.  The vendor, however, sent a different amount to the collection bank: $12.09 more.  After several months, this friend began receiving overdue notices.  The collection bank had an automated call system that prevented "talking with a real person about accounting discrepancies" and would not allow emails.  After five months, the friend just gave up and paid the bill: $582.21 on an overdue amount of $12.09.  Or $570.31 in interest, fees, and late payments in five months.  Annualized, that is over 1,100%!  Worse, his credit number dropped from 750 to 550 on Equifax.

Why is this important?  First, collection banks charge fees of over $40 per month regardless of the amount due, and second, credit rating services assume you are wrong, and the merchant is right, every time.  You don't get a chance to defend yourself.  And disputing is next to impossible.

Rohit Chopra, director, the Consumer Financial Protection Bureau (CFPB), proposes to amend Regulation Z, which implements the Truth in Lending Act (TILA), to better ensure that the late fees charged on credit card accounts are "reasonable and proportional" to late payments as required under TILA.  The proposal would lower late fees to the lessor of $8 or an amount not to exceed 25 percent of the required payment.

Currently, late fees account for $13 billion in revenue by collection banks.  This amendment would reduce fees by $9 billion.  Lobbyists for the banks oppose this big time.  When has cheating the public by a bank been okay?  Add to this the fact there is no limit on the interest rates charged by collection banks.  Don't believe this?  Google it.  This leads to the question: what is the difference between a collection bank and a pawn shop?  This is left for the reader to ponder!

Image: Quoteinspector.com.