Page 501 - Business Principles and Management

Unit 5

Focus On...

Ethics–Improved Credit Ratings
Don’t Always Help

Jonathan Allan worked as a computer specialist. He and his wife,
Anita, used the same bank credit card. For two years, they always
paid the balance of their monthly credit statements on time. But six
months ago, Jonathan lost his job because a larger firm purchased
his employer’s firm.
To get by, Jonathan used the credit card but was often not able to
pay on time and finally missed payments for two consecutive months.
The credit card firm reported his recent poor record to the national
credit agencies. As a result, he now had a low credit score and was un-
able to get any new credit at all.
Jonathan finally found another job that paid almost as well as his
previous one. He wanted to restore his credit record, so both he and
Anita worked hard to save money. Within a few months, they had
paid off their credit card debts. But unknown to Jonathan and Anita,
the credit card firm deliberately did not report this positive informa-
tion to the credit agencies. When Anita decided she wanted to obtain
a new credit card being offered through one of her favorite stores,
now that the family financial picture was much better, she was
shocked when the credit application was rejected.
Jonathan and Anita are not alone in facing this dilemma. A study
reported by Experian, one of the three largest credit bureaus, found
that one in four credit consumers do not always get as good a credit
rating as they actually deserve. Some of the largest credit-issuing firms
have withheld information about customers who improve their credit
performance. They don’t want that information to reach their com-
petitors. As competitors search for new customers, they tend to avoid
people like Jonathan and Anita with poor ratings to focus on people
with good ratings. In Anita’s case, her credit card firm is pre-
Think Critically venting her from qualifying for credit with a competitor. If
competitors had the updated information showing the higher
1. Why should consumers regularly credit score, they would likely issue a credit card and the origi-
ask for copies of their credit nal company could lose a current customer.
reports from companies such as Competition for credit customers has caused the practice
Equifax, Experian, or TransUnion, of not reporting updated information to credit bureaus to
especially before a major credit increase in recent years. In spite of warnings issued by bank
transaction or after resolving a regulators and complaints from consumer groups, not all
credit problem? companies have changed their practices. Credit card issuers
2. Assume you are the CEO of a seem to be ignoring the warnings. The association of credit
credit card company that refuses card firms is trying to resolve this problem rather than have
to withhold positive credit infor- the federal government take action to stop it. However, it
mation, as your competitors are is not easy to get businesses to change practices that they
doing. How would your action believe give them a competitive advantage.
help and hurt your company?
3. Do you believe the credit card
companies will stop their uneth-
ical practice voluntarily? Explain
why or why not. If they don’t,
how should the practice be
changed?

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