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Does A “Credit Record Underclass” Exist?

Does A "Credit Record Underclass" Exist?

For quite some time, there has been a growing controversy in the use of one’s credit history when deciding everything from automobile insurance to whether or not a job offer is extended. Part of that controversy, of course, has to do with just how accurate our credit scores and reports are. It’s long since been understood that our ability to responsibly handle our finances has everything to do with any credit card offers we are extended as well as the interest on those credit cards.

Our credit reports can keep us from qualifying for a low interest credit card or a low interest on our mortgages. It can be deciding factor on whether or not we are approved for that new car loan, too. But how fair is it that these imperfect algorithms determine our job status or even the quality of health care we receive? A new term has been coined, the credit record underclass and it’s just as distasteful as the name suggests.

The Credit Record Underclass

A new research study and now a piece in The New York Times has said that the use of a credit record when determining a hiring manager’s decisions could “marginalize millions” of families while also effectively creating a new credit record underclass. There are those who are now saying the use of credit histories past their “traditional” use is troubling and falls “devastatingly short on fairness and accuracy.” After all, some reports say as many as 35% of Americans’ credit reports are marred with inaccuracies. Further, even the Federal Government is saying the majority of less than ideal credit scores in low and middle income families is due less because of irresponsible spending and more on medical expenses that collection agencies have been too quick to deem troublesome.

Your Credit Cards

Have you recently applied for a new credit card? Maybe that 0% APR intro offer was just what you’re looking for to transfer your balances? If you were declined, it could be that an error exists on your report. There are three major for-profit credit agencies, Equifax, Experian and TransUnion. Each has its own guidelines, though there are laws in place to ensure consumers have access to their credit reports.

If you suspect an inaccuracy on your report, you can request a copy, free of charge, once a year. And if you think it’s not going to make that much of a difference if you do dispute a false entry, think again. When you do the math, a quarter percent on one’s mortgage can equate to thousands of dollars over the course of the life of the mortgage. That’s money that can be used to pay down credit card or other debt or can be put into your 401k.

A Mistake on Your Part

With the economy and its current less than ideal state, it’s not uncommon for consumers to take a hit on their credit reports in these tough times. If you’re one of those who can relate to the frustration of missing a payment or having to pay late, that doesn’t necessarily mean you’re out of luck when it comes to a new credit card.

There are many options in this particular sector. Many are turning to pre-paid credit cards and then for those who qualify with good credit (as opposed to excellent credit), you may not even need to go the prepaid route. There are many credit card offers with slightly more lenient credit requirements.

Using Credit Cards for Medical Bills

While there are those who say putting medical expenses on your credit card isn’t the best idea, for those who apply for and receive an offer that includes an intro 0% APR, it could mean the difference between a lower credit rating and limited opportunities and maintaining a higher credit score that you’ve worked so hard for. In the end, it’s a decision only you can make. Weigh the long term benefits with your own level of self discipline. If you can knock a significant portion of the debt out before the intro rate expires, it might be a reasonable solution for your needs.

It’s uncertain how long it might be, if ever, before the dynamics begin to shift in terms of who and how credit histories are used. As always, though, it’s up to each of us to take responsibility for our own buying and credit histories.

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