Credit Bureau Blues

Like many of you, I had an incredibly frustrating experience with a credit agency today. It was TransUnion but I’ve had equally frustrating experiences with Equifax and others since locking down our credit information in the wake of the Equifax data breach last fall.

What is particularly galling about this place we all find ourselves in is that none of us chose to be customers of these credit bureaus. They simply collected the info on us from third parties, built up credit info on us, which they sell to banks and other lenders, and now, because they are unable to protect our data, we need to be customers of their lock and lift services.

TransUnion charged me $5 today to put a temporary lift on my credit report lock. It’s not really the money that bugs me, it’s the entire absurdity of how we got here that galls me.

And, of course, the UI on the online service was so poor that I ended up talking to a customer service agent who struggled to communicate with me in my native language.

Why was I even dealing with this nonsense? Because I want to lease a car instead of purchase one and, even though I’m willing to pay the entire lease upfront, someone still needs to check my credit.

And I’ve got it good. Good credit. The means to avoid this nonsense most of the time. Etc. Etc.

But think about so many of us that need access to these basic financial services and are hostage to these terrible companies! It is a mess.

And an opportunity for entrepreneurs. I’m rooting for all of you.

#hacking finance

Comments (Archived):

  1. LIAD

    I’ve had reason to look into the apis credit agencies offer – for a lending product I’m involved with.I noticed amongst the trove of data they had available were bank account balance. Made no sense to me how they could have that that info.Turns out if you have an overdraft facility on your bank account, even if you’re not currently or even never have used it – by virtue of having the facility the account is classified as a credit account and thus data from it is passed to credit agencies. Absolute madness.Plus it’s a self perpetuating model. If as a company you want to draw info from the agencies the only way to do that is by agreeing to feed the agency your customer data. As in you can’t read without writing too. Strong business flywheel – but makes it so hard even for the most disruptive startups not to end up reinforcing the shitty shitty incumbents.

  2. LE

    Because I want to lease a car instead of purchase oneI would love to know the use case for you (Fred) leasing a car. Because I find it hard to believe that whatever you have been told about the tax impact really matters at all in your particular situation. Now if you are doing it for a kid and want to have them make the lease payments to teach them a lesson I guess that is a valid reason. [1] But other than that I don’t know why you (Fred) are messing with this type of bull. Just pay cash and be done with it. It’s a ‘cost of doing business’ (where ‘life’ is the ‘business’). You pay more for quality, convenience and to avoid aggravation in other cases. Why is this any different if you have the cash (and you do)? You aren’t retired with nothing to do right? You are not my 90 year old mother shuttling money around to different banks to eek out an extra point of interest.I always pay cash for a car. For one thing if you lease you are locked in for a fixed time period. I don’t like that. I want to be able to wake up in the morning and decide when I want to get another car. And I don’t want another payment to make every month (ditto if there is a bank loan so I don’t do that either obviously). Last I checked with a lease you are locked in. And I don’t want to deal with paperwork and what you are dealing with either.Story: I bought a new nice car last year. I drove it away and didn’t like the way it sounded on the highway. It was a convertible. I decided that on the highway with the top up you couldn’t hear the engine. So the next morning I called the dealer and told them I wanted to bring it back and get another model (more expensive). They said nobody had ever done that. I had actually ordered the car it was a new model so I had never driven it. And this was over the July 4th period last year. They took about a week to bounce the problem around while the car sat in my garage (I had another one that I drove of the same make). They finally got back to me and said they couldn’t take the car back more or less. So I went to another dealer, traded the car in, and got the car that I wanted. Then I contacted the manufacturer and got them to give me back the money I had lost. Porsche. I did this by showing them that the dealer didn’t handle the transaction correctly because they hadn’t even titled the car yet (I checked with the state as well as the girl in the dealer office who processes the paperwork haha busted). So the dealer could have taken the car back very easily. I even offered to pay them to do so for the paperwork they had already done. See how fair I am? That was the clincher. The manufacturer, actually the President’s office, thanked me for letting them know what had happened with one of their dealers. And, then they gave me a voucher for more than the money that I had lost (as I intended to buy another model when it came out in addition to the one that I had gotten). [2]If I had leased? No way. I would then be on the hook for a lease and I would not even be the owner of the car (the leasing company is).Anyway there are valid reasons for people to lease but often they don’t think through the downside. I am just curious what your reasoning was for leasing instead of buying.[1] But you aren’t because you want to pay everything up front.[2] Under the theory of ‘pigs get fat, hogs get slaughtered’ I decided to fold my hand and accept a voucher rather than fight longer for cash. Besides I was actually more happy that I got them to do something for me than the money which I had already written off. (Things like this are sport to me and a form of enjoyment..) And besides I intended to buy another car again.

    1. William Mougayar

      Few people are as shrewd as you are and able to pull those punches like you did. But I too revel in teaching bad service a lesson if I can.

    2. fredwilson

      Not taxes. I am getting V1 of an EV .I don’t like to oen V1s of cars

      1. LE

        So you saying the particular leasing company that you are using will allow you to bounce the car and get another one if you don’t like it because it is new and Version 1? (What happened to me in my story actually).

        1. PhilipSugar

          Bet you a one year lease everything included.

          1. PhilipSugar

            Well, I am in the executive program, but yes. It is smart. You try it out on me. I am a beta tester, but I know I am.

        2. Brook Shepard

          V1’s are notorious breakers. Co.’s iron out the kinks.Watches, cars, etc…

      2. John Revay

        Tesla Model 3? (I am about to configure mine shortly) – not really thinking about it as a V1 but rather V3

        1. LE

          How much more do you need to hear that they don’t know what they are doing in building cars? Now they are putting them together in temporarily tents. And apparently figured out a bit late that they can’t do everything with robots. What does that tell you? Toss up between whether I’d trust my life in a Tesla or a Chrysler. You really want to ride around in something that is obviously getting shoved out the door in what seems a haphazard fashion?What is the rush to get into one of those anyway?It’s like this self driving car shit going around. They hire people but then they don’t manage them in a way that prevents the operator from watching tv while supposedly watching and overseeing the car. Or they see videos of people hoping into the back seat while the Tesla is on autopilot. No biggie hey we warned them look at this funny video. Ooops someone gets killed on a bicycle. No big deal. Imagine if that were your kid or relative? All in the name of shoving things out like it’s Windows 1.0 and someone elses aggravation (and in this case life).

          1. PhilipSugar

            I have one. I have said this a million times. Great until exceptions. Tractor oncoming?? Doesn’t like. Construction? Worst is emergency equipment.

          2. sigmaalgebra

            Self-driving? Hopeless. Nonsense. Scam for the gullible fooled by publicity and hype.Proof: For current real traffic on current real roads, occasionally real intelligence is needed. So far no one has even as much as a weak little hollow hint of a tiny clue how to program real intelligence. Done.

          3. John Revay

            Tesla Model S , net question would you buy it again?

          4. PhilipSugar

            Sorry self driving car

          5. John Revay

            The rush is $7.5K Federal tax credit and $ 3K State of CT credit – $ $10K helps turn a $ 55K car into a $45K car real fast …and I am comparing to a $ 35K fully loaded Honda

      3. PhilipSugar

        Look at Volvo, my brother is in digital marketing, did the deal where Amazon loads your trunk. They are now selling subscriptions, not leases. I was the experiment on this one:…I am with you. Could not pay me to buy.

        1. LE


          1. PhilipSugar

            An appliance when it breaks you throw out. Cars are getting to that point but they cost a zero or two more.Let’s give an example. My 2001 Silverado. Brake light goes. Walk into Autozone they say well all the bulbs brake, reverse, hazard. It’s $2 for 2 or $5 for 6, most just replace all. Done in parking lot 2 minutes.Yukon Denali XL with LED’s. $600Silverado alternator goes (at 230k) $180 out the door installed.Denali because it is so complicated: $800 for the part.Want to see complicated? Look at this twin supercharger turbo in the Volvo.… Think you can wrench that? I bet the repair starts with “pull engine, transmission, and transfer case.Ever wonder why you can buy a used Rolls so cheap? Go to Kerbeck: https://www.fckerbeckbentle…What held it’s value the best?? The 1970 Cadillac coupe De Ville.Look at the haircut you take on a Bentley with less than 20k miles.

          2. LE

            Except for one thing. I would never own a luxury car past the warranty. I actually have one that just got out of warranty. The only reason I am not getting a new one is because they are changing over the model. So I am waiting and will take my chance. I just spent $2000 on required maintenance. So I fully understand the concept. And actually in 4 years I have only put 16k miles on it. It is in great condition. I drive it so little (my other one has 6k miles on it and is maybe 2 years old).However any car you buy now that is new (and pay cash for) is covered by a bumper to bumper warranty. Now with Mercedes and Porsche you pay periodically to keep up the warranty. But then again if you are buying a car like that it shouldn’t matter to you and you are not a college student either. With BMW (which my wife has) you get all of that bumper to bumper and a loaner car. That is why I told my wife to get one among other reasons. Plus maintenance.So your example of the costs you are detailing only matter once a car is out of warranty not while it is covered bumper to bumper. And even a BMW covers all of the required maintenance.…(Oil change on Porsche? $400 or so…)LED lights well they are LED lights. They are not like old style that burn out very easily. Can happen but you know typically those last.

          3. PhilipSugar

            Known problem with circuit board, being a shitty build. Both went, one under warranty.Here is the problem with your theory.Let’s say you buy that Version 1 car and people say it SUCKS. I mean bad. It depreciates from $100k to $10k. You are stuck. Let’s say you paid $500/month lease for 36 months. You are out $18k versus $90k.I have always bought, and bought used. I’ve sold cars for more than I’ve paid after running hard. Best was a Honda del Sol I bought for my finance now wife.But the one time I did go new and lease was a Ford Exploder mis-spelling meant. I leased because at the time Ford had a credit card with 5% back and you could apply to a lease and it was like $150/month. You could not give those things away after their 10 recalls.

          4. LE

            My emphasis:Let’s say you buy that Version 1 car and people say it SUCKS. I mean bad. It depreciates from $100k to $10k. You are stuck. Let’s say you paid $500/month lease for 36 months. You are out $18k versus $90k.A few things.1) Are there any cases of a major car brand that has depreciated as you are illustrating in your example. Or even close? (Separately if you own you can get out prior to the news even being widely known quite easily you would admit if it is that bad. Not an overnight thing..)2) If #1 how many times has that happened? Vs. How many new car releases per year?3) My original questioning was why Fred would do this. A person who is more than financially stable and can easily absorb any risk of not only normal depreciation but abnormal depreciation. Self insure so to speak.4) We are talking about a car here. Not a new Jet for $5.2m or a new Yacht for $20 million (much higher price point and downside risk).5) In the case of real estate this is not even a reason that people ever lease vs. buy (typically). And there is a case that can be used to illustrate what you are saying with real estate. Millennium Tower in SF:http://www.businessinsider….

          5. PhilipSugar

            If I was buying a Tesla they are making in tents I would lease.I’m making no predictions but why do I want to take this bet:Now anybody that says they are green……I’d say look at how the batteries get made in China.Tesla has a ton of short term money and needs sales. They might say the residual value of a $80k car is going to be $65k in three years, add in financing fees which you take as profit upfront and you get to my $18k.Ok. But according to Bloomberg they burnt through $1B in cash in the quarter and need to raise $10B to survive through 2020.…Let’s say makers like Volvo who have said they go all electric by 2019 and are made and backed in China where they make those batteries make it tough for that financing.…Now in 2021 you are holding a car that has no support for the last year. Because the finance guys on Wall Street drive them they’ll work the number to take the other side of that lease, but when the residual values start coming in after the novelty and exclusiveness wears off and they start selling for under $65k there will be a free fall.I am not even factoring the risk if you have a major recall because you are building in tents which really kills the value if they can’t support fixing it. Meaning you now have a car to sell you have to get somebody to fix and that might be really expensive.

          6. sigmaalgebra

            Solution: Drive train based on standard Chevy parts with small block V-8. If avoid supercharging, direct fuel injection, etc. and just get some old, reliable, simpler, cheaper parts lots of mechanics know how to work with, then have a good engine for 200,000 – 300,000 miles.With the transmissions with such wide gear ratios, fuel economy can be surprisingly good.That Volvo engineering is just nuts, like they thought that gasoline would soon be $50 a gallon.There are so many huge sources for cheap gasoline, we should have cheap gasoline for at least another 200 years. E.g,.(1) There is recent news that with fracking the Texas Permian Basin has more recoverable oil than Saudi Arabia.(2) The US has hardly begun to tap offshore oil on the east and west coasts.(3) There are several other large shale oil sites in the US.(4) All it takes to make gasoline is carbon, water, and energy. If solar energy is cheap, then when the sun is shining, use that. Otherwise use, say, nuclear, from uranium, plutonium, thorium, etc.For energy for a car, a 20 gallon tank of gasoline is super tough to beat. With a relatively simple small block Chevy engine and a recent 8 speed or so transmission, drive train problem is SOLVED.

          7. Lawrence Brass

            According to the article, the turbo can speed up to 25000 rpm! Can you hear it whine at some point?I love the sounds of engines.

          8. PhilipSugar

            It really doesn’t make that much noise.I have a lumpy Chevy v8 you know where the cam is aggressive such that at idle you hear it lump and when you hit it, it growls through flow master mufflers.My Cummins 5.9 turbo would whineMy Triumph tr3 and tr4 would burble.I loved the sound of my a8 4.2 V8 five valveBut it is really quiet.Kind of like my Yamaha 150’s that power my boat.Just works

      4. Brook Shepard

        Or watches.

    3. Walker

      you wrote: “(I checked with the state as well as the girl in the dealer office who processes the paperwork haha busted)”. Not a girl.

      1. LE

        How do you know? Were you there? You have a problem with the use of ‘girl’? I don’t.

        1. Walker

          Young woman or woman, not girl.

    4. Richard

      There is a use case where Leasing is a no-brainer. When the leasing company cranks up the residual value above the what you deem (you wager) to be the (beat up) expected value of the asset at the end of the lease. BMW does this all the time. They allow you to dinged up car for and pay you 25-30% more than what you could have sold it yourself. You probably know this but a lease payment is the borrowing costs of borrowing the entire asset plus the difference between the sales price and the residual value.

      1. PhilipSugar

        Exactly. Never thought I would say this. I loved buying super luxury cars six years old. First lease for the rich people, second lease for those who were posers, and then I’d buy and run into the ground. I’d have a great mechanic and I have more than one car. Problem now??? Great mechanic doesn’t mean squat. Think you can replace the battery on your BMW???? Nope. Windshield on that car??? Three grand.

        1. Richard

          Yes! It awesome not to take on any exposure when it comes to repairs.

        2. LE

          I don’t know. I buy a new car. I get the dealers 24×7 roadside assistance. I get a brand new loaner car when I need service. You get a car that you can feel comfortable taking on a long trip or even to NYC. Sure you can buy a third party roadside assistance and sure you can get an Enterprise rental car (and waste time doing that). And that loaner is ‘wait for enterprise return to enterprise’ hassle. What is the point of making money if you aren’t going to make your life easier in as many ways as you can is my guiding principle. I pay for convenience and to reduce aggravation (what Fred experienced).So I kind of like going to the dealer and driving right away in another brand new loaner car. And when I decided I didn’t like the loaner they gave me I went back and they gave me another loaner. With 1000 miles on it.Look nobody is eating at the cheaper restaurant because it’s cheaper and the food is ‘just as good’. People pay for the experience. [1][1] This is part of what Volvo is doing obviously with that program you detailed.

          1. PhilipSugar

            You are arguing against yourself. I don’t understand. Do a one year subscription. Done. Get a new car in a year. Want to pay the money, you have nothing but new. Hell the new car smell will still be there. Drive as little as you? No brainer.If your dealer doesn’t send a person to pick yours up and drop off a loaner, you need to look at another one.

          2. LE

            They do. I don’t like someone driving my car. I’d rather drop it off.Besides the base issue is I want the car that I want. Not the car that has the subscription. (Or the car that offers pickup service etc. so even if my car didn’t I’d still buy it..)And I want to order that car exactly as I want. And I simply like owning.Not sure what I would do if the car that I want had a subscription. If it did I would then think about it further. For now I am happy buying it the way that I do and having the title in my hands.

      2. LE

        I definitely agree that there are cases where, for certain people, leasing ‘makes sense’. It is typically sold as a way to get into a more expensive car than you can afford (what does that tell you btw, umm?). But to your point most people are not able to napkin what you are talking about numbers wise. I have actually done that in the past a few times. But sure sometimes the leasing company loses the edge and takes a chance in order to goose there numbers. How much is the question though. Anyway someone leases they often spend more because they view the extra amount (that some feature or model costs) as a monthly cost and focus on that. So it’s a way for the dealer to manipulate you (which is good for someone who buys for cash let them make profit on you, not me). Very common for the dealer to simply try to take your monthly cost that you say you want to pay and work you up to there.By the way the company cranking up the expected value can also be taken as something that you can rely on as well. There is nothing magical about what they will do with the car off lease. If the car has value off lease it is worth more when you want to trade it in as well.Here is one downside to leasing vs. buying a car or renting vs. buying a house.Consider this. Forced savings.Most people are not super disciplined.So if you buy (and you take on that extra cost and don’t have a huge ‘crank it up’ value that you are detailing) what do you have? You have forced savings. It is totally normal to spend more money if you have more money in the bank. Just like people will eat more if they have a bigger portion of food. Sure they don’t have to but they do. People will spend. Now you could say ‘well they can take the money they save by leasing and they can invest it instead’. Great. I say most people will merely blow that money on something else because they will feel ‘rich’. So they will take another vacation etc.Make sense?

        1. Richard

          Forced savings into a depreciating asset almost never makes sense.

          1. LE

            However you are looking strictly at numbers ie ‘depreciating asset’ and I am detailing human behavior (which btw I have a great deal of experience manipulating in actual practice not related to autos).

    5. Victor Izmaylov

      Consider getting a car with a naturally aspirated engine…like an Audi R8 while you still can…and enjoy the glorious sound at any speed. One drove past me today at 25-30 miles an hour and the sound was FANTASTIC!

  3. Soham Bhatia

    Long Bloom

    1. awaldstein

      Been following them from the ICO.Lots of potential. Non trivial vision. I’m rooting for them. Brilliant community builders btw.

      1. DJL

        The web site has very little information except for “Sign Up”. I hope they do well. One of the truly perfect areas for blockchain.

  4. aminTorres

    Yikes. I left the agency world and work at a financial institution for the last 6 months and most things I’ve encountered having to do with finance are mind boggling to me. Very much in alignment to all of the sentiment of your post. So much so that I keep telling myself – and others – that startups exist because of this very stuff.I am glad to hear you react to the UI. A lot of software in the space is so bad that it makes me question everything. The money that banks, finance in general pays for terrible software that looks bad and flat out sucks, is beyond my ability to understand.Stuff that is deep integrated into archaic processes has created a mentality in the space that is hard to change. If you mention the word “cloud” you are literally laughed up to your face. I don’t know what to make of it all to be honest.

  5. William Mougayar

    What would be a better solution? These companies have the whole thing rigged up, and it sticks like mud on everything.Why would Visa or Amex grant back door transaction activity to a startup instead of Transunion or Equifax? The only possible grace is to build an entire new system, maybe with crypto at the base. As it stands, your credit rating doesn’t belong to you really. We are at the mercy of their systems.

    1. LE

      I read a story in the print WSJ yesterday about Rex which is a company that Scott McNealy (Sun Microsystems) invested in and is letting sell his 96.8 million dollar home (which I imagine is really just a publicity stunt). Rex charges 2% fee but more importantly will not split a commission with another agent and doesn’t put the home into any type of MLS system. [1]……Here is the way that this needs to be approached. You do it by simply finding another way to verify and even guarantee credit from the ground up. Right now the way the system is structured it isn’t even accurate.My point is you don’t necessarily need access to a credit card issuing bank (like Capital One so it’s not Visa you mean but you mean the actual bank they have the info on when and how you pay). You simply need to find a way to bypass that entirely and figure out if someone is credit worthy by another metric. Then you offer that ‘seal of approval’ to people who pay for it.[1] A house at that level of course needs exposure to buyers all over the world it isn’t going to be sold without exposure that costs money either in commission or advertising. Obviously. Hence it’s more publicity stunt that belief that Rex could sell the house (the other houses there are vastly less expensive).

      1. William Mougayar

        Is there a GDPR of financial transactions, i.e. “give my VISA transactions info to XYZ, not TransUnion or Equifax” for example.

        1. LE

          Well what would prevent another entity from simply allowing you to upload your VISA payment history or your mortgage statements, whatever? Or, allowing another entity to access your bank (you mean bank, not VISA I think because the bank knows how you pay and when) credit card account?I had a residential lease for a recent college graduate. The father said he would cosign (I never asked actually not sure why he offered). He was a financial planner. So he sent me his brokerage account statement showing his assets. I was also able to verify who he was and where he worked from both linkedin and the company website (major company) that he worked for. So I made a credit decision based on that. The co-sign didn’t even matter. Not like I am going to sue if the daughter doesn’t pay her rent. Also he paid all the rent for the year in exchange for a discount off the asking rent. I told him I’d rather just post dated checks so I could record the income in 2019 for tax purposes.My point is he simply supplied information and I evaluated it common sense wise.In business back in the 80’s we used Dun&Bradstreet for business credit. Someone would call on the phone. I had access by my computer system to D&B (nobody had that but I did). While the person was on the phone I would size them up by what I was able to find in D&B. Worked very well. Gave credit based on that often.

          1. William Mougayar

            right, but “he simply supplied information and I evaluated it common sense wise.” doesn’t scale. it works on a 1:1 basis.

    2. Richard

      “rigged up” ? You are sounding a little like Alex Jones.

  6. LE

    TransUnion charged me $5 today to put a temporary lift on my credit report lock. It’s not really the money that bugs me, it’s the entire absurdity of how we got here that galls me.We have trivial charges for things customers do. And they are charges that our competitors don’t even charge for. One of the justifications for doing so is that the additional friction of charging a trivial amount on a credit card puts an extra layer of protection in the process.Reading into your comment further it seems the thing that bugged you and set you off was how aggravating it was because you had to talk to someone who probably sounded like an idiot ‘I am very sorry you are having problems today Mr. Wilson let me see if I can help you’ and was working in an overseas call center. Not the $5 or even the fact that you had to pay $5.What I have found is that this is why people typically forget the price and just remember the service (good or bad). If you give good service people will pay more for it and forget what they paid. [1] However when you are a mass credit bureau dealing with people of all different levels that is not possible to do unfortunately. So you end up having to deal with the type of thing that ‘regular’ folks fight with every day.What I think when things like this happen? “Wow it must be really hard to be a person that is not as smart as me and doesn’t have money and gets shafted left and right”.[1] We get thank you’s after charging what others give away for free many times. Because you deal with a real person with a name and not some dope or automated letter. People like that.

  7. cfrerebeau

    Wondering how these businesses are handling GDPR or the new California Data privacy law. My understanding of it let met think, there might be a way to tell them to stop storing data about you.

    1. DJL

      They are going to screw it up completely. If you tell them you want to “opt-out” – then they will refuse to give your information to any bank. So you will be hosed. According to GDPR, you should get your credit report for free. This will be interesting to watch. Nobody has ever “opted in” to a credit reporting agency.

  8. JLM

    .Use a single purpose Delaware Corp created for the sole purpose of holding the car lease if you are going to prepay the lease. There is no credit to check.You should be holding any asset with any liability attached to it (homes, cars boats, airplanes) in wholly owned Dela Corp subsidiaries.The liability is compartmentalized. The corp veil cannot be pierced.Once you form the parent, you can create subs with the stroke of a pen. Just remember to register them and to note them separately on your USAA policy.JLMwww.themusingsofthebigredca…

    1. LE

      Corp vs. LLC? Or do you mean either?I use NJ and there is a trivial cost to register and then a small yearly cost that is fixed and doesn’t relate to any activity.I am seeing that DE is quite a bit higher than NJ:

      1. JLM

        .The key is to have a parent DC and to use wholly owned subsidiaries. That way you pay a single fee.I use C corp.JLMwww.themusingsofthebigredca…

    2. Farhan Abbasi

      I looked into this myself but then you’d have to get commercial insurance and that is much more expensive than personal auto, to a point where it generally exceeds the upside of LLC protection.

      1. JLM

        .Not sure why. I did this exact thing with USAA.The only thing they ever asked is if there is a lienholder, which there was not.You also have to ID all drivers.I do this for liability compartmentalization purposes.JLMwww.themusingsofthebigredca…

        1. Farhan Abbasi

          But isn’t that the point of insurance, to not face personal liability? If you do an LLC (costing about $100 annually plus additional tax/filing effort), what downside are you protecting yourself from? It also seems easy to pierce the corporate veil in this case since it’s a single member LLC that doesn’t keep separate business operations, books/records, etc. But I’m no lawyer. I’m guessing you’re seeing it as just yet another layer of protection in case insurance doesn’t cover a major liability.

          1. JLM

            .In Texas, where I live, you are required to have insurance as a condition of registering an auto.I use a single DC and wholly owned DC subsidiaries, not an LLC.It is virtually impossible to pierce the corporate veil in Delaware, one of the reasons you use a DC in the first place.I use it to avoid personal entanglement and exposure. This is very common.JLMwww.themusingsofthebigredca…

          2. kenberger

            “to avoid personal entanglement and exposure”:do you mean in case a skateboarding kids dives under the car while you’re driving it?or someone sues for some other reason? or asset protection?or ?

          3. JLM

            .Or to avoid the mistaken notion that someone thinks you possess a deep pocket and wants to know “How deep?”It costs $25 to file a lawsuit.JLMwww.themusingsofthebigredca…

          4. kenberger

            if we’re talking about a car, re being sued, is the target really the *owner* or the *driver*? (in which case ownership wouldn’t matter)Or what’s a better example you mean re a horror story than the list i mentioned?(super interesting stuff, btw, thanks)

    3. Alan Warms

      JLM – really enjoy your comments here – thank you for participating in the forum – always super value add. On this point – only issue with using a corp vs. LLC is there are some assets you own where you want to operate via LLC to take the losses generated by depreciation (you need other passive income to cover). Do you have different thoughts via the “pierce-ability” of a DE LLC?

      1. JLM

        .My comments were intended for holding assets, not operating businesses.The difference with operating businesses – to access operating losses – is a different problem and, therefore, using an LLC would be fine.Talk to a good corporate lawyer.There are a handful of legal tests which prove or defeat “alter ego” piercing. The facts and your behavior have to be correct.JLMwww.themusingsofthebigredca…

        1. Alan Warms

          grt thanks

  9. Dorian Benkoil

    Fred, you touched a sore spot for me. I’ll try not to vent.My spouse and I are in the process of buying an apartment, for which we’re getting a mortgage. My credit score, we found out, dropped two levels because I was four days “late” last November on an overage fee for a $5.44 charge for Citibike for a Citibank account I didn’t realize was actively being charged. (I was “late” because a bank rep told me all looked fine to her, after I saw something amiss, then another rep called me about three weeks later.) I protested to Citibank, even got the branch president to push back on the corporate office, but to no avail. I was also charged multiple times by credit agencies, including TransUnion, and their deceptive wording meant they kept charging me monthly for what I had thought would be one-time fees. (I had to call and spend 30 minutes more on the phone to get them to cancel the monthly charges and refund me the roughly $22 they had erroneously charged me.)The credit dun could have cost of thousands more for the mortgage, so we ended up getting it in my spouse’s name, alone, which raised other questions from the building where we’re buying.It’s all working out, but what a huge hassle in time and needless money spent, including by the bank’s personnel. We were caught in a machine that I never asked for, never signed up for. I acted in good faith — taking care of issues within days of learning how to do so — and was nonetheless (despite 20 years of strong credit) treated as an undue risk. I understand the need for a system, but this one does not work appropriately. Those of us who try to behave well are often punished unduly by the algorithms where reasonable people, such as the bank staff, saw the reality. (I would like to cancel the Citibank account, but am afraid what that might do to the credit rating. I’ll probably do that after we’re in the building and have started paying the mortgage.)

    1. fredwilson

      That sucks

    2. Salt Shaker

      How is an incidental late fee, such as yours, not built into their ratings system as just that, “incidental”? Another beef is when you have a minor outstanding balance of a few bucks on a store credit card and they want to charge you $X in late fees. They’ll usually wave w/ a phone call, but it shouldn’t come to that in the first place. Bad debt is always a prob in the CC industry, but customer ill will can be just as detrimental.

      1. LE

        but it shouldn’t come to that in the first place.That is good, not bad, by economic principle. Ill will? You will think they suck anyway if they don’t do things to your liking all the time. We are not talking about Whole Foods or Starbucks.In theory if you assume a business needs to make money then they charge an amount and that goes to profit. Then if someone complains they take it off and the person is happy. It actually makes sense if you break it down and you realize importantly that nobody is going to love them anymore if they don’t do that. So they pocket some extra cash that way. Once again you already think they suck so ‘why not’ is probably the thinking?For example I go to a restaurant. They always say ‘oh if you want X it’s another 1.00. To me they should just do what you ask. Then if you complain they take it off the bill. Then you are happy. Meanwhile others pay and don’t even notice. There is no rule that says you need to detail every minor charge down the penny. Especially if you are wiling to remove that charge simply when asked. Most importantly charging that in theory allows you to lower costs for everyone and pay higher wages (because you are getting more income).Of course like with anything you can’t be lazy and it has to be done right and thought through. If not it will backfire. So if someone says ‘can I substitute’ then you say ‘yes but there is a small extra charge’. If they say “how much” you tell them. If they don’t ask you just put it on the check like anything else. Look sometimes they don’t even give you the price of the specials they are serving. And when they ask what water you want they don’t tell you that some water costs more money. Etc.

        1. Salt Shaker

          I’m sure a lot of retailers or cc companies are banking on a large % of customers not making the call to receive a fee waiver. Easy bit of profit, if a customer’s balance is subsequently paid in full. Among those who do call (“since you’re a customer in good standing and we appreciate your biz….”), it’s actually a backhanded way to build loyalty and brand equity, even though having to make the call in the first place is a pain.

        2. Dorian Benkoil

          Let me clarify. The penalty for the alleged misdeed is way out of proportion. I paid a $25 fee for the account overage triggered by a $5.44 charge. Then I found out that having been four days late with the overage and fee — due to misinformation from a bank rep — caused a drop in credit score that would cost 1/4% on a mortgage. That’s many thousands of dollars difference for a small mistake that I contend was not even my fault. The mortgage investigator confirmed they found no other issue in my credit reports for the past seven years (the period they check). The bank refunded my $25 fee, but the hit on my credit score remained.

          1. LE

            Then I found out that having been four days late with the overage and fee — due to misinformation from a bank rep — caused a drop in credit score that would cost 1/4% on a mortgage.Well not that you want to discuss your personal finances with me but is it possible that your FICO was on a border to begin with? And that one event was the straw that broke the camels back?I am not saying that makes it any less ‘sucky’. Or that it should have happened at all.But for example if you had been well into the 800’s then there would be more room for you (or someone else) to make a mistake (and have something bad happen) and it should not have impacted what you could borrow money for.My wife recently went to get a mortgage. She was given the best rate. From what I understand that goes to anyone that has a FICO of 750 or above where the top score is 850. So if you are in the 800’s you are going to not drop down to levels based on what you are relating.Once again that doesn’t make what happen to you right. However there were other events that also I assume contributed to the score being on or near a border.I think the broader question here is why nobody has figured out a way and/or put in the effort to have legislation introduced that protects against situations like this. Meanwhile they spend time marching and complaining about social issues that impact way way less people.Why don’t you try to get a meeting with your congressman and see if they are receptive to any of this? (Not hard to do and if you make it easy for them they might actually take up the cause especially if you can get them publicity for doing so and if it impacts many people which it probably does).

    3. Richard

      There is blame here but is it really fair to blame the messenger (TRANSUNION) for this one? I have have lots of issues with TRANSUNION et al., but in this scenrio they are the messenger. It is the Mortgage issuer who is using the score. It is the mortgage issuer who uses these scores blindly and the regulator who strong arms them to do so.

      1. Dorian Benkoil

        I blame Transunion at the very least for charging me hidden fees for reports I didn’t commission.

  10. Aneesh Varma

    Fred – we talked about Aire ( — we launched in the UK few years ago and now coming to the US.This is a space that takes time to change (regulations, enterprise, data, models maturity). But we have shown with Aire that these types of companies can be consumer-centric and have a meaningful impact on the overall ecosystem.

  11. obarthelemy

    The opportunity has already been seized: if educated, rich, white Americans get to pay $5, imagine how much non- non- non- can be milked for. I doubt that can be topped by any entrepreneur.

  12. Salt Shaker

    Someone please identify a similar industry or transactional flow where data is collected from lenders (or customers) for FREE and then subsequently SOLD back in aggregate to those same lenders (or customers)? All independent of consumer privacy concerns. Crazy!

    1. Richard

      Seriously?? this model actually makes sense where the aggregator adds value. What is 10X worse? 23andme, where your pay the aggregator to collect your info.

      1. Salt Shaker

        The aggregator makes money off of your back, though. I see the value in aggregation, I’m not disputing that, but everyone benefits financially except the consumer. Ever try cleaning up your credit cause of some erroneous bs? If you paid by check and the USPS lost your letter. Good luck trying to clean up that kind of “bad debt.” The system is flawed, w/ no margin for nuance or reasonable exceptions.

        1. Richard

          The aggregator provides value to the public in the form instantaneously vouching for a consumer’s credit worth. But the real value is that they provide a nice buffer for the credit issuer who currently get no blame for blindly following the scores.

          1. Salt Shaker

            Shouldn’t the onus for an erroneous credit score fall on the ratings service, not the issuer “who blindly follows the scores”? If you’re paying for a service don’t you want the info to be accurate and correct, otherwise what’s the point of subscription? Speed, efficiency, convenience, only to the extent the ratings are accurate. Maybe not a large enough pain point on a macro level, since incorrect ratings are prob a small percentage, but that doesn’t do much good for those whose lives potentially are ruined, including w/ employment.

          2. Richard

            No! think about it. The credit bureaus sell a score. Twitter and facebook also sell scores, your engagement/influence. The credit provider could of course use any score or means to make a lending decision, but it must of course be free of bias. The beef i have is that there is of course hidden bias built into the scores against the poor and or undereducated whose habits are easy to model.

          3. Salt Shaker

            Sorry, hard pressed to equate fb influence/engagement scores used to sell advertising, with credit scores that can have life altering consequences.

          4. Richard

            Credit scores are a difficult multivariate equation. Without evidence to the contrary, the assumption is the agencies are putting out the most reliable score possible.

  13. DJL

    These companies are the worst. I’m glad someone got hammered for insider trading on that breach. And then this SAME company offers you identity theft protection! You cannot make this shit up.

    1. PhilipSugar


  14. Benji Wakeham

    The UK has an interesting opportunity to solve this with Open Banking and specifically Account Information Services. A single authenticated API request could inform the leasing company of my identity (verified by the bank) and also current (and historical) bank balance.

  15. Renee Leibler

    I invested in Bloom last year during their ICO- these business models need to be disrupted. I hope they succeed. When you think about the current business models of credit reporting agencies, it is in their best interest to find ways to ding the consumer because then their customer, mostly banks can charge higher interest rates. It is really so messed up…

  16. Andris K. Berzins

    @fredwilson:disqus check out (from Latvia, neighbor of Estonia where your Jobbatical investment is based. The next generation of credit bureaus, using better data than the credit agencies use – actual consumer account transactions. If you think the US is bad, remember that the data is much more accurate in the USA – in most other markets the situation is a lot worse.

  17. Kirsten Lambertsen

    A TO THE M.E.N! Good luck, though, attacking FICO and its imps, Equifax, TransUnion and Experian — institutionalized organized crime syndicate.FICO likes its monopoly and makes defending it a top priority. Try registering a domain name that just happens to have the sequence of characters “fico” in it and could possibly be interpreted as meaning FICO.If attacking the taxi industry was challenging, I think that’ll be a drive around the park compared to going after FICO (I include the 3 bureaus by inference whenever I say “FICO”).But yeah, power to anyone willing to take that on!BTW: I wrote a guide to fixing your credit back when I did battle with FICO et al 10 years ago. Most of it’s still valid and works, and I’ll give it to anyone who asks. A lot of the info was gleaned from discussion forums that FICO has since torn down and destroyed. Most of the info is _not_ what FICO or any of the bureaus tell you.(Don’t even get me started on bullshit artists like Credit Karma…)

    1. LE

      Try registering a domain name that just happens to have the sequence of characters “fico” in it and could possibly be interpreted as meaning FICO.They didn’t oppose this trademark application btw:…Should be interesting to see what happens with this company that filed one pro se application:…Separately the issue is never registering (other than registering say ‘red cross’ or something that is protected by specific law’). It is how you use it and if you use it.

      1. Kirsten Lambertsen

        I had two domain names taken away from me (albeit 9 years ago) without ever using them or being given a chance to explain how I was going to use them. I got a notification within days of registering. They basically had a monitor in place that just caught anything with the string “fico” in it.

        1. LE

          I had two domain names taken away from meUm, who ‘took them away’ exactly?Who was the ICANN registrar that you used?And what do you mean by ‘taken away’ in particular?Who sent you the notice?

          1. Kirsten Lambertsen

            I can’t remember exactly, I’m afraid. I _think_ I registered through GoDaddy. I got email notices from GoDaddy (I think). I’m pretty sure my money was refunded. The domains just disappeared from my GoDaddy dashboard.It was *striking*. I’d never experienced anything like it.

          2. LE

            There is ZERO that a ICANN registrar has to gain by doing what you are saying happened to you vs. what they have to lose. While there are (as mentioned) things that are protected by specific law (like use of ‘red cross’) [1] in order to cancel a domain name (such as one containing a trademark) there is a specific procedure that must be followed (typically filing a UDRP then perhaps some type of a court action). As you know those things don’t happen in a day. And nobody is going to pay for a UDRP without at first sending you a scary lawyer letter which doesn’t mean they have a legal leg but they will make you think they do and you will fold your hand. Importantly in no way does any third party have the ability to get a registrar to cancel a domain name (in the way you are saying it happened). Period. And the chance of godaddy being in cohoots and doing this is close to Zero.Not that I need to back up something like this but here is godaddy in particular. Nothing in the way they operate (and I know a great deal about them btw) is different in 2008 vs. 2010 (date action brought) detailed here:https://blog.ericgoldman.or…[1]

          3. Kirsten Lambertsen

            It happened. I don’t remember the details, as I’ve said. But I had no recourse or opportunity to retain the domains. I would have if I could have. It was nine years ago.

    2. PhilipSugar

      I want to get you started. Let rip on Credit Karma.

      1. Kirsten Lambertsen

        LOL 🙂

    3. LaVonne Reimer

      I waited all day to comment. Over 10 years ago ago (yeah I’m confessing to a horrible story of failed attempts to get financing), I launched a startup to build an alternative system. Game plan was start with small business where consumer data about the owner and business data about the entity are conflated. A flanking strategy of sorts that could then broaden to encompass consumer credit. Many of the other comments touch on the complexities of disrupting a massively powerful industry such as this but that wasn’t the challenge with VCs. Rather, it was that I was proposing and have built a data-sharing platform grounded in stewardship rather than controlling all data users might connect and/or share on the platform. Everyone, and I mean everyone including investors we know and admire right here in these threads, gravitates to the hoard-data model. It’s lucrative. Investors know and understand the basis for sky-high valuations. Wall Street rewards these models too. As others have noted, GDPR and maybe soon real market antipathy thanks to Equifax threaten the whole cabal. I’m excited about that. As a former lawyer I LOVE a complicated regulatory regime. But, I have given up on launching this as a venture-backed startup. I’m in discussions with adjacent players for an acqui-hire. Too much time and personal savings gone but one way or another I hope to fight on. Just writing here to say it is feasible to come at the credit bureau problem in a new way and it doesn’t even require blockchain!

      1. PhilipSugar

        You go! And I live in the land of credit. Delaware. You reach out anytime.

      2. Kirsten Lambertsen

        But LaVonne, all ya gotta do is *add* blockchain and the VC’s will be knocking down your door ;-PBut seriously, I have a bottomless reservoir of respect for anyone running at this. The whole thing hurts my head. (I’ve followed you so I can keep up with your story.)The thing that strikes me here today is that I think I’m the only one who mentioned FICO. To me, that’s the head of the snake.

  18. Kirsten Lambertsen

    And of course the consumer UI sucks. You’re not the customer. You’re the product.

  19. goldwerger

    This space is ripe for MASSIVE disruption.PII belongs to the person’s whose identity is being (ab)used. That core tenant hasn’t yet been played out by market pressure or regulation, but it’s bubbling up to the surface for anyone who pays attention.The entrepreneurial path here is about putting the power and control over identity and private data in the hands of the end user, and letting her/him decide if/where/when/how to use it.The sin here is double (1) using your data without your consent or intent, (2) putting it on a central database that is vulnerable to be hacked, without regard to your risk tolerance of losing your identity to theft.My belief is that within a decade the current credit bureau industry will be displaced as a result of rising privacy concerns from users, increasing regulatory restrictions (e.g. GDPR), and prohibitive security risks from hacking – each in varying degrees of priority depending on geography.Some investors in this segment may have done well to date. But I would sell those shares at this time if I were in (I’m not).

  20. Richard

    Fred, wasn’t USV an invesotor in lending club? Think this through a little. Imagine the scenario where you apply for a loan without the aggregators? There would be no lendingclub. Aggregators provide a service of value to the consumer and a huge service for the lender, who has cover for denying loan. The aggregators primary responsibility to you the consumer is to ensure that the data is secure and provide you a mechanism to correct erroneous data. Have a beef with how the scores are used? Focus that beef on the lending companies AKA TESLA.

  21. BillMcNeely

    I am probably an anomaly here at AVC, as I have bad credit that I earned through my circumstances over the last half decade. I have bad credit but that does not mean I am not a sophisticated buyer. I always get that stunned look when I don’t accept a $2,000 extended warranty ( You can get it for $400-$600) negotiate price per feature ( see Edmunds) , negotiate 2% off my interest rate on the third offer sheet , cut bank charges in half for bad credit folks like me while rejecting other nonsense charges. I always buy via email ( I have bought literally millions of dollars of vehicles this way as a project manager) so it can be down as an individual.Lastly I always but dealers on a timer and never give up my keys for trade in assessments if I go that route.Always pays to research and to bring your life’s knowledge to your personal business.

    1. creative group

      BillMcNeely:A free forum that provides real life examples and feedback of repairing credit for free using the Consumer Credit Protection Act, is a United States law Pub.L. 90–321, 82 Stat. 146, enacted May 29, 1968, composed of several titles relating to consumer credit, mainly title I, the Truth in Lending Act, title II related to extortionate credit transactions, title III related to restrictions on wage garnishment, etc. (Free)Captain Obvious!#UNEQUIVOCALLYUNAPOLOGETICALLYINDEPENDENT

    2. Lawrence Brass

      The downside of taking risks is real.I respect scars more than tuxedos.

  22. creative group

    CONTRIBUTORS:With the majority of C Corporations in any state in America you will need to structure itwhich presents the following drawbacks:1. The potential for “double taxation2. The requirement to file more paperwork. Corporations are required to hold formal board and shareholder meetings and keep accurate minutes of these meetings. In addition, there are a series of tax forms that may need to be filed with federal, state, and even local officials, including corporate taxes (IRS Form 1120), taxes on salaries and other employee compensation (W-2s), and profit distribution to shareholders (Form 1099-DIV)3. Filing corporate tax forms may require an accountant. The tax forms for corporations can be complicated and may require you to get some help from an accountant. In addition, corporations have to pay federal taxes by March 15 — a full month before the individual federal tax filing deadline.When we see the herd just upvoting just because they lapdog essay writing it really shows how empty the vessels are.A sole proprietor (single person) should just consider an LLC. Very easy to make in each State agency that has easy forms to fill out and then publish in a local paper.Critical thinking is an indispensable asset.The following is the best source we read on the subject of establishing a corporation to protect assets. We are not expecting any upvotes. We don’t seek them. Hopefully the information will assist those who seek it.source:…Always give credit to those who deserve it.Captain Obvious!#UNEQUIVOCALLYUNAPOLOGETICALLYINDEPENDENT

    1. JLM

      .You are modestly confused.1. We are talking about a DC parent and a series of wholly owned subsidiaries.2. Corp subs do not file anything, they consolidate into the parent.3. These are not “business” corporations and they have no income.4. If you have no income, you file no INCOME tax returns.5. A DC with a single owner meets all of its obligations by providing for a “unanimous consent” of the shareholder in lieu of an annual meeting. There is no agenda or minutes when using a unanimous consent.6. Because there is no business conducted, there is no necessity to prepare books or account for anything except for a terminal sale.This is very simple stuff.JLM http://www.themusingsofthebigredca...

  23. Brook Shepard

    I could not agree more. I’m currently knee deep in trying to finance a ridiculously small thing that I could just buy outright, and I’m forced to deal with Experian for hours and hours and hours because they have the wrong phone number for me.

  24. reggiedog

    You think an entrepreneur can challenge this situation?how quaint….ha ha…

  25. sachmo

    The algorithms for consumer credit risk across the banks make absolutely no sense.When I bought my car 6 years ago, I went to my local credit union and asked them to give me the best rate that they could. In my bank account at the credit union, I had 5x the car’s value sitting in cash.But I didn’t believe in credit cards, and had only recently learned about how the credit system worked, so my oldest line of credit was only 1 or 2 years old. I had no debt whatsoever to my name and paid off balances in full every month.They decided to give me a terrible 7 or 8% interest rate. Because my total credit line was low and my credit lines were young, the algorithm assessed me as a risk.So instead of taking the credit, I withdrew approximately $20k from the credit union and paid for the car in cash.The credit union made a huge mistake. They lost the $20k in deposit which they could have put to use loaning out to other people and earning interest, they also lost the opportunity to loan me money directly and earn interest.The look on the bank manager’s face was priceless when I cancelled all the paper work and asked for cashier’s check to pay for my car.I don’t understand how credit bureau’s give LOWER credit scores to ppl who sitting on cash with little or no credit. And I don’t understand why the banks blindly follow these algorithms.Is this a case where AI has failed? Or does some genius entrepreneur need to develop a more sophisticated algorithm?Like in chess, I think the answer should be human – AI combos, where the AI can make a tactical play on the overall score, but a human needs to carefully weight the inputs given the context of the situation.

    1. Richard

      Banks are heavily regulated by the federal gov. Payments that are 90 days past due are Charge-offs, which are the value of loans removed from the books and charged against loss reserves, are measured net of recoveries as a percentage of average loans and annualized. Delinquent loans are those past due thirty days or more and still accruing interest as well as those in nonaccrual status. They are measured as a percentage of end-of-period loans. It is NOT about your ability to REPAY.

    2. sigmaalgebra

      For the good, first cut answer, calm down, sit down, and listen up.The solution — OOPS, can’t go there yet!!! First have to sweep, mop, and wash the sewage off the floor, the “AI” stuff. To heck with “AI”.Whew, now the place smells better!!!The short answer is in just two words: Cross tabulation. Or, to heck with regression, logistic regression, neural networks, etc.Or, given real random variable Y and random variable X, possibly multidimensional, maybe infinitely dimensional, e.g., the full financial history over time, uncountably infinitely many points: OOPS, stop here. For the X, we’re talking a lot of generality, enough to cover everything can think of in ordinary credit records and much more. There’s a better way than just X to think of the full generality, but that would take us an hour or so. So, X just has the data available, however complicated.Then it follows — on revision, proof at the end — the best least squares estimate of Y from the data in X is the conditional expectation of Y given X, commonly written E[Y|X]. The estimate is unbiasedE[E[Y|X]] = E[Y]and, from the “best least squares”, minimum variance. Tough to get better statistical estimators than that.In comparison, for all the AL, ML, neural, …, flush it directly into the NYT sewage processing plant.Okay, how do we apply E[Y|X]? The usual way — we have a large sample and average. And how do we do that? Already said — cross tabulation.When have enough data, use cross tabulation.With less data and some assumptions, regression can give estimates with lower variance. Did I mention some assumptions? Well, as we know too clearly, the assumptions don’t hold for credit scoring. Why? Because “customer already has that much cash in their checking account” is not used well in the regression, neural nonsense sewage. For cross tabulation, that fact can be one of the components of the given X, and cross tabulation can say, “Right away, send out for a some Le Cirque carryout and pop a cork of bubbly because now have a gold level bank customer.” Can’t expect to do that with curve fitting, multivariate statistics, regression, etc. Right, could use “nominal variables”, …, but it remains: If have plenty of data, then just use cross tabulation.For the banking industry and credit evaluations, there’s plenty of data.Foundation for the math is the Radon-Nikodym theorem of measure theory, e.g., as in W. Rudin, Real and Complex Analysis. Rudin gives the really cute proof due to J. von Neumann.Now I want you to remember just two words — cross tabulation.Simple enough?Uh, no sense in being obscure. The proof is not difficult. So, let’s just do it:The context is a person applying for credit.We assume that Y is a real valued random variable where E[Y^2], that is, the expectation, of Y^2 is finite — meager assumption, especially for practice.The Y is something about credit worthiness, e.g., the loss on a loan, we are interested in.We assume that X is a random variable taking possibly very general values, e.g., a credit history at uncountably infinitely many points in time in the past. We assume that we have the value of X — that’s our credit data on the person.Let’s do a little preliminary derivation: What value of real number a minimizesE[(Y – a)^2]Well, we haveE[(Y – a)^2]= E[Y^2 – 2 Ya + a^2]= E[Y^2] – 2aE[Y] + a^2= E[Y^2] + E[Y]^2 – 2aE[Y] + a^2 – E[Y]^2= E[Y^2] + (E[Y] – a)^2 – E[Y]^2which we minimize with E[Y] = a.Or, for one interpretation, the minimum rotational moment of inertia is for rotation about the center of mass.So, for our main concern, suppose we want to use the data we have X to approximate Y. So, we want real valued function f with domain the possible values of X so that f(X) approximates Y.For the most accurate approximation, we want to minimizeE[(Y – f(X))^2]Claim: For f(X) we wantf(X) = E[Y|X]So, f is the best non-linear least squares approximation to Y.Proof:We start by using one of the properties of conditional expectation and then continue with just simple algebra:E[(Y – f(X))^2]= E[ E[Y^2 – 2Yf(X) + f(X)^2|X] ]= E[ E[Y^2|X] – 2f(X)E[Y|X]+ f(X)^2 ]= E[ E[Y^2|X] E[Y|X]^2 – 2f(X)E[Y|X]+ f(X)^2 – E[Y|X]^2 ]= E[ E[Y^2|X]+ (E[Y|X] – f(X))^2- E[Y|X]^2 ]which is minimized withf(X) = E[Y|X]Done.

  26. george

    The credit service rating system works like this:Your Score is calculated using positive and negative information on your TransUnion® credit report. It summarizes your risk to lenders at a specific point in time. FICO® Scores consider the following 5 categories of information. The breakdown below illustrates the significance of these categories for the general population. Note, however, that your individual score may give some factors more or less importance based on the information in your credit report.Payment history: 35%Amount you owe: 30%Length of credit history: 15%New credit opened: 10%Types of credit you have: 10%Does this really depict credit worthiness?-NoDoes it measure liquidity? – No.It’s primitive and rear view…

  27. jason wright

    “Comments are closed for this post” (Funding Friday: Atlantic City).is AVC a fragile thing? is it unable to absorb volatility?blogging blues. not a vintage week.

  28. Quantella Owens

    Well, I have been working on a system for the “non-non-nons” to be able to bypass the current process entirely and I believe it will solve most of this, but it uses insurance as it’s base. The problems minorities have applying for mortgages, auto loans etc have been well documented, so I guess it’s only fair that the more “first world” problems receive some attention. If a system doesn’t work for you, then it is generally because it was built to do so. But those on the bottom of the pile still need to do all those things: buy house, get credit, buy cars and it is harder to do when you don’t have the education and support systems in place. I have been working on this on and off for twenty years and I suppose that is a testament to both the intractability of the problem and its breadth.

  29. Pointsandfigures

    Agree. Banking is similar. Tough for people who don’t have enough money to bank

  30. Sebastian Wain

    Living in Argentina, we are having issues extending our company credit cards credit because we never borrowed money and never operated like a normal (almost broken) Argentinian company. When we tell our bank representatives: hey, just check our balance, they say that the score comes automatically from an unique rating agency and they can avoid their recommendation only as an exception.This issue is exacerbated when you need to pay cloud services like AWS by credit card and the company debit card cannot be used in Internet.

  31. Howard Locker

    In North Carolina there is no fee to freeze and unfreeze your credit – should be that way everywhere in the US. Also why can’t you register your phone number or email and get an alert if someone is trying to open new lines of credit in your name? Then you can stop it if fraud and you would not need to freeze/unfreeze

  32. Shlomi Podgaetz

    We fully agree with the issues around credit data both for personal and businesses and are working hard to solve this as we believe that individuals and businesses should own and be able to monetise their information.If anyone is interested to learn more check Credible by

  33. Adam Parish

    You may not be a fan of Dave Ramsey, but he doesn’t have a “credit” score. He has refused to take out loans and credit cards and therefore if someone looked him up with Equifax they would see “not enough history.” He argues in his book Financial Peace that we need Income scores and not credit scores. Interesting twist.

  34. TASCET

    Fred, you provide a great summary of the bureau problem:“… none of us chose to be customers of these credit bureaus. They simply collected the info on us from third parties, built up credit info on us, which they sell to banks and other lenders, and now, because they are unable to protect our data, we need to be customers of their lock and lift services.”The solution we offer posits the person themselves as the escrow agent positioned between an organization and their own identifier. This means the person must be present to materialize an exchange of their personal information. In this model one gains ownership of their PII back from bureaus.Individuals are still subject to their credit, but not the bureaus. This means one could choose to remain anonymous or choose to share their credit information for compensation (instead of it being harvested without consent and profitted off of unsuspectingly).We’ve been championing this cause since 2005: