"It is the purpose of this title to require that consumer reporting agencies adopt reasonable procedures for meeting the needs of commerce for consumer credit, personnel, insurance, and other information in a manner which is fair and equitable to the consumer, with regard to the confidentiality, accuracy, relevancy, and proper utilization of such information in accordance with the requirements of this title."

In the words of Congress, the previous text is the purpose of the Fair Credit Reporting Act (FCRA). In short, the Fair Credit Reporting Act was created to protect consumers against unfair practices of the credit bureaus.

While the mission of the FCRA was a noble one, a quick look around today's credit systems shows the results have ended up well short of expectations. What follows is how the FCRA has failed to produce a just credit system for today's consumers.

Three Shortcomings of Today's Consumer Credit System

1) Accuracy - It is well documented that credit reports contain errors but it bears repeating. Recent studies indicate that nearly 4 in 5 of all credit reports contain errors such as duplicate listings, wrong dates, tradelines added to the wrong person's credit reports, and positive credit accounts that are not included.

These same studies also show that 1 in 4 credit reports include inaccuracies large enough to cause outright denial of credit.

How fair is a system that can cause a person to be declined for a loan or force them to pay higher interest rates than are necessary based on their actual credit risk? Granted, you have the right to dispute these inaccurate listings with the credit bureaus, but this task is not necessarily simple or foolproof. Depending on the nature of inaccurate items on your credit reports, fixing your credit can be a frustrating and time consuming event you are forced into.

2) Relevancy - While they do not communicate it directly, the big three credit bureaus' creation of the VantageScore is evidence enough that the current FICO credit scoring models are not as relevant as they could be. According to Experian spokesman Donald Girard, the VantageScore is "the most sophisticated, highly predictive scoring model that's available in the marketplace" and as a consequence the more popular FICO score is less predictive.

One of the shortcomings in the FICO score that the VantageScore tried to fix is the impact that old credit accounts have on the credit score. According to Dr. Bonnie Guiton Hill, advisor to President Bush on consumer affairs, "it is our understanding that computer models that predict credit worthiness find most information that is more than two years old nonessential." This is why newly created scoring models like the VantageScore are starting to downplay credit accounts that are over 3 years old. They do not have a place when trying to accurately determine your credit worthiness.

So why have lenders been so reluctant to accept scoring models such as the VantageScore? They say it is because FICO is engrained in the current credit system. A more cynical answer is that these lenders are unmotivated to sacrifice the profits they make from charging higher interest rates on loans provided to consumers who are a relatively low credit risk.

3) Proper Utilization - Given how common it is for a credit score to be a misrepresentation of a person's credit risk, the point could be made that the pervasiveness of credit ratings in the financial market is inappropriate. But in today's society, the use of credit scores goes well beyond determining the size of a loan and its interest rate.

Employers, landlords, insurance companies and others frequently request to see your credit score. Your ability to get a certain job, rent an apartment, or get approvedqualify for reasonable insurance premium can all be influenced by your credit score.

Improper is a subjective term, but being passed over for a job because of irrelevant and potentially erroneous negative credit items in your credit reports that are plugged into a flawed credit scoring formula to create a three-digit credit score that is not indicative of your actual credit worthiness fits the bill.

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