I’m afraid that your credit score is being used in all the wrong ways for all the wrong reasons.
The credit score was originally designed as an easy way for lenders to identify which potential customers would be low risk and high profit acquisitions. Using a credit score to screen new customers allows lenders to approve or reject your application in seconds, rather than hours or days with manual screening.
The uncomfortable side of credit score implementation is when your credit score is used in other unintended ways. It is understandable that the use of the score has crept into other markets. The creators and sellers of your credit score actively encourage other industries to buy your score to make decisions. But do all those decisions make sense?
The way you use credit may be really smart and wise for you but hurt your score and cause ripple on effects. Even creditor actions can cause the same negative consequences for you in the cost of insurance, employment and access to health care.
Credit bureaus have encouraged the use of the credit report and credit score for employment screening but there is no evidence to show any correlation between a credit score and the value of an employee.
And today with credit card companies running for financial cover, their self-serving actions can lower your credit score even though you have not done anything wrong. When a creditor either lowers your credit limit to just above your balance or closes your account to limit their risk, it can have a negative impact on your credit.
If you’ve had an unpleasant run-in with problem debt in the past but have now recovered and not started borrowing again, your credit score will continue to suffer. Even if you live on a cash basis and avoid credit, your score will be worse.
Ironically the credit score can only be improved through the current use of credit, even if you don’t want to use credit. New and good credit use must appear on your credit report in order for you to be scored on it.
Those people that only buy what they can afford and avoid credit actually have the worst credit scores. No credit is worse than bad credit when it comes to scoring you.
Those that lived through a traumatic event like bankruptcy will have an ongoing and continued negative score since their credit histories essentially end with a string of bad credit and now as they live financially responsible, their lack of new credit does not help to bring their score out of the gutter.
So why is the credit score so important? Well you credit report creeps into your daily life in unexpected ways. Credit reports and credit scores are used as a screening tool and a way to judge you for employment, insurance, and more disturbingly, access to medical care.
More hospitals are performing a “wallet biopsy” on patients to determine if the patient can afford the medical care to be delivered. This does not appear to impact people brought into emergency rooms, broken and bleeding, but those that need additional services, like a CAT scan and specialized treatment.
Hospitals that are now using sophisticated software credit scoring and financial screening tools are finding ways to flag people that were traditionally unable to pay for medical services since they were charity cases, as potential or likely to pay from retirement plans or other lines of credit.
Today, a sudden and unexpected medical event can leave you broke and unable to pay. A single appointment can leave you with thousands and thousands of dollars of medical debt in a matter of hours and by using new financial screening tools, some hospitals are cruising your credit report and spotting available cash advance opportunities on credit cards and encouraging patients to take extremely high interest rate cash advances on those cards to pay for medical services that are often billed at an arbitrary and inflated cost, especially to those without insurance.
The story has two sides to it. On one side is the limit to medical care that physicians have identified as necessary for the health of the patient and on the other side are the for-profit and not-for-profit hospitals that are unwilling or unable to provide medical care for those that don’t meet their scoring or screening models.
Ultimately the issue comes down to a question if access to health care should be universal to all United States citizens or are we comfortable letting some people die prematurely or suffer because of their credit score.