Video 08 – Credit Bureaus

Transcription of Video #8 Credit Bureaus

Are we all familiar with credit bureaus? Who they are, Equifax, Experian and Trans Union. Interesting business. Imagine you’re home after a hard day’s work one night and a neighbor from up the street, you don’t really know him but he comes and he knocks on your door. He says “Hi, how are ya doing? I’m Joe. I’m starting a new business. I’de like you to help me out. I’ve decided I’m goint to go around the neighborhood here and I’m gonna collect information on all of my neighbors. When I’m done collecting it then I’m going to sell this information and I thought I would start with you.” How would you react? “Nope, I would close the door.” Boom! Absolutely. This is exactly what their business is. They collect information about people. They sell in the form of mailing lists for marketing and credit reports for checking credit. They’re pretty good at it. Pretty big companies. Biggest of the three is doing almost 8 billion dollars a year. Information is a good business. Next thing you want look at is why do they do it and who are their customers? A customer for a credit bureau is a lender or somebody involved in money, right? This is where they get their money from. That’s the income side of their business. So with that in mind, who do they want to please? Who are they vested in? Are they vested in the poeple who’s credit reports they’re selling or are they vested in the customers that are buying them. Customers, exactly. How do the customers make more money out of this? What’s their profit margin? Interest, Right? So they’re vested in being able to charge as much interest as possible. The whole system is set up to keep people on the edge. Maybe not disqualified but they are able to charge them the highest rates possible. That’s what the credit bureaus are vested in because that’s what their customers are interested in. That’s what Fair Isaacs and Company, Fico, is vested in, because that’s what their customers are paying for. If everybody had good credit, how many credit reports do you think they’de sell? Right? So they want to make sure that they got people with damaged credit out there. They’re not vested in making our credit reports good. They’re vested in keeping them marginal. Our job is to understand the rules of that game and how we can play be their rules to have good credit so we’re not paying the piper too much.

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