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January 13th, 2010

Americans Required to Give Up Even More Privacy

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Think your paycheck is for your eyes only? Think again. Americans are surrendering over more and more of their personal information with each passing day — and your paycheck is the latest bit of personal data that’s now out in the open.

The final rules issued by the Federal Reserve under the CARD Act will now require credit-card companies to examine your income when you apply for credit as a means of determining your ability to make payments. The examination of your income, among other factors, can be used to determine whether or not your application is approved, the size of your credit limit, and/or whether you may be pre-approved for certain offers:

To provide flexibility, however, the Fed said that issuers can use “a reasonable estimate” of income or assets based on “statistically sound models.”

Red flag number one. Does the term “estimate” scare anyone else? How about the phrase “statistically sound models”? The credit bureaus themselves admit that their ability to judge an applicant’s income is merely a ballpark estimate:

Experian estimates income to the nearest thousand, while TransUnion offers a range. But both acknowledge the estimates are just that. Experian says that more than 85% of the incomes it estimates at about $35,000 will indeed be below $50,000—but that’s hardly precise. Chet Wiermanski, global chief scientist at TransUnion, said it isn’t uncommon for estimates to be off by $15,000 or $20,000.

According to the Wall Street Journal, contracts prohibit lenders from turning down applicants based on their income data alone. However, that stipulation opens the door to even more of your personal information — such as pay stubs and tax returns — being brought out into the open.

Karen Blumenthal of the Journal writes that, because the state of your personal info means so much these days, “…it’s more important than ever to make sure the debt data in your report are accurate. Check your three reports at least once a year, or check one bureau’s report every four months.”

What Do You Think of ‘AnnualCreditReport.com’?

Paying your bills on time — even the seeming “less-important” ones like your utilities and cable — is extremely important for your credit score. It’s not just the “big three” credit bureaus who are collecting information on you.

And this is a little heads up to those out there — perhaps many of our younger readers — who have little to no credit established yet, paying bills, like your cellphone, on time is your key to establishing a decent credit score.

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4 Responses to “Americans Required to Give Up Even More Privacy”

  1. Lucia Says: January 14th, 2010 at 4:39 pm

    Maybe the headline should read “No More Stated Income Allowed on Loan Applications”. A bit too long? I’ve never been good with headlines, but the focus of the piece was on the return to verifying a borrowers income instead of using the income average for the borrowers wages. That’s good news. Stated income facilitated many borrowers acquiring loans they couldn’t afford, which I think comes awfully close to mortgage fraud.

  2. Steve Says: January 15th, 2010 at 10:40 am

    I have to agree with Lucia on this. Since when did lenders’ efforts to verify the income numbers that applicants give become an intrusive, privacy-violating practice? You ask a bank to lend you money, and you state certain facts in support of your request. Why should you be surprised or take umbrage if the lender attempts to verify that what you state is true?

    One of the contributing factors to the financial mess of the last several years was lenders who accepted–without verification–what applicants told them they earned. I am reminded of a Russian phrase that President Reagan was fond of quoting in another context: Doveryai no proveryai (trust, but verify).

  3. Tim Manni Says: January 15th, 2010 at 10:52 am

    Lucia,

    Income verification should only be one small piece of the puzzle. As the article stated, credit can’t be denied based on income alone, but what if they completely miscalculate your income and you’re denied credit? Not the biggest deal I know, but according to the article, and TransUnion said it themselves, they can be off by as much as $15K.

    It’s a new world — all of our info is out there — and it’s not like you even have to be on facebook for it to happen either.

    Thanks,
    Tim

  4. Tim Manni Says: January 15th, 2010 at 11:14 am

    Steve,

    I totally get what you guys are saying, and “trust, but verify” is what should have always been done. I took an angle of the story and ran with it, but you and Lucia have highlighted another great angle.

    Thanks, keep these quality comments coming,

    Tim

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Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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