Your credit card issuer reports your payments to the credit bureaus, the companies that prepare credit reports for lenders to buy.
In 2005, Experian has been collecting data on every transaction an American makes, from going to the doctor and paying for health insurance and groceries to paying off credit cards, using information from credit reports. That includes not just the value of a purchase, but how much was paid in advance.
And, in 2008, Experian came out with a credit report called the Experian TransUnion Credit Report. This report can contain the personal information of anyone who has ever applied for credit, including all the details you provide. It tells lenders how much you pay for loans and how much you are able to pay back.
The whole system is designed to make it more difficult for the wealthy to get a good credit score.
During the boom, there were the twin effects of consumers piling up debt and lenders deliberately pushing down the prices of homes. The credit bureaus took notice of the consumers’ financial health and squeezed.
This, in turn, lowered the average consumer’s ability to pay back their loans and pushed up the interest rate they would pay. So, it could pay to have a high credit score, not only to avoid paying off your loans and get a good credit score, but also to help you buy your dream house.
What would an experiment teach us about this? I think we might have to start by breaking the cycle. For the people most in need of a good credit score, what you do is essentially a tax on yourself. For a middle-class kid or adult looking to make it into the middle class, it does not matter much what your credit score is. You can come from a family of five, make your first foray into the real estate market, and fall into ruin.