The Beauty of Credit Checks

Fantastic column from Jeffrey Tucker. The free-market working.

In Praise of Credit Checks – Jeffrey A. Tucker : But as we reach adulthood, we begin to realize that something like the “permanent record” does exist. It is called the credit report. Its assembly and maintenance involves no police, no bureaucrats, no government offices, no one paid by the taxpayer. It is unconcerned about your looks, your politics, your preferences, or your associations. It is entirely private, and it judges only one thing

Credit reports aren’t perfect, and everyone has a story about some mistake. But the key point is that, because they are private, there is an incentive structure in place to fix errors and improve reporting. They strive to be as accurate as possible, because this is what lenders want. And it turns out that every detailed study has shown them to be incredibly accurate — and very good at dispute resolution.

And yet, think of it. No one comes to arrest you. There is no violence. You are not thrown in debtor’s prison. No one puts a scarlet letter on you. All that a negative report can do is cause you not to be trusted with credit again. This is entirely reasonable. And there are ways to fix the problem. You can pay into a card account that debits cash rather than extending credit. And it is absolutely the case that every possible creditor is cheering for you to get your life in order. They want to extend credit. They want to do business.

The truly wonderful thing about this system is that it is entirely private and results from the voluntary interaction of human beings in the marketplace. No one is forced into it. But if you choose to be part of the credit system, you must behave. You must do the right thing. You must not steal from others, which is what it really means not to pay your bills. The credit report is nothing other than a report on whether you tend to do what is right or what is wrong. Thus is there no point in cursing the system or decrying it as an invasion of your life. The credit report is the best friend of the responsible in the same way that it is the worst enemy of the irresponsible. In other words, it tells the truth, and the truth can be good or bad for you depending on what is true.”