Is the Credit Blacklist a Real Thing or an Urban Myth?

Your fingers are shaking as you type the last of your information into the credit card application. You’ve been denied in the past, but this time you are sure that you will be accepted. After all, the company sent you a notice saying that you were “pre-approved!”

You hit “submit,” cross your fingers, and wait. 15 seconds later a response comes back.

Denied.

What is going on here?! You mention it to your uncle who tells you about this thing called the “credit blacklist.” Basically, because you’ve misused credit cards in the past, you are on a secret list that ensures you never get a credit card ever again.

Sounds about right, you think to yourself. But is that what’s really going on here? Is there such a thing as a credit blacklist?

No, there is no such thing as a credit blacklist.

Please forgive us for not keeping you in suspense; there is no such thing as a credit blacklist.

Maintaining a hard blacklist is forbidden under the Fair Credit Reporting Act (FCRA) and the Equal Credit Opportunity Act (ECOA). The FCRA was passed in 1970 and the ECOA was passed in 2003. Both aim to prevent discrimination in lending and ensure proper use of citizens’ private data.

If there is no credit blacklist, then why would someone be continually denied for credit? The answer lies in their credit history as well as the algorithms that large companies use to make their lending decisions.

Your credit history determines your credit future.

Whenever you take out a loan or a credit card, make a payment or don’t make a payment), add money to your credit card balance, close a card, pay off a loan, or file for bankruptcy, that information gets reported by your creditor and added to your credit report.

Information stays on your report for seven years (or longer in some cases, including bankruptcy) and it shows how you’ve used credit in the past. When people talk about your “credit history,” they are referring to what's contained in your credit report.

Or rather, your credit reports, because you actually have three of them. Each of the three major credit bureaus:Experian, TransUnion, and Equifax, collect information and maintain their own separate version of your credit report. Depending on which businesses report to them, information can vary between reports.

The information contained on your report is used to create your credit score. More often than not, your FICO score (created by the FICO corporation) is used, but it could also be your VantageScore, which was created as a joint venture by the three credit bureaus.

If you are denied for credit, it is likely because of the information on your credit report and how it’s reflected in your score.

A poor credit history can have the same effect as being “blacklisted.”

The exact algorithm for creating your FICO score is secret, but the FICO corporation has stated that your score consists of 5 different information categories and that some categories are more important than others.

The two most important categories are your payment history, which makes up 35% of your score, and amounts owed which make up 30%. Together they account for over half your total FICO score.

The other three categories combine to make up the remaining 35% of your score; the length of your credit history comprises 15%, while your overall credit mix and your recent credit inquiries each make up 10%.

If you’re being denied for credit, the odds are good that it’s because of problems in your payment history and/or your amounts owed. Maybe you had a period where you were out of work and skipped a number of credit card or installment loan payments. Or perhaps you were a recent college graduate who racked up too much credit card debt within two years after graduation.

Even if it’s been half a decade since you cleaned up your financial act, that information is still on your report and dragging down your creditworthiness.

Credit report errors could be resulting in a “blacklist” effect.

Credit bureaus collect information on hundreds of millions of Americans, so it’s not at all surprising that mistakes end up on people’s reports. But that lack of surprise doesn’t forgive the immense damage that these errors can do to your score.

Errors can arise from any number of things, including the company that reports the information to the bureau making a mistake. Oftentimes, an error will stem from your information being confused with someone else’s because you have the same name.

Don’t worry. These errors can be fixed. To check your report for errors, visit www.AnnualCreditReport.com and request a copy. By federal law, each credit bureau is required to provide you with one free copy of your report per year. All you have to do is request it.

If you find an error on your report, follow these instructions from the Consumer Financial Protection Bureau.

Getting flagged by Chexsystems can feel like you’re on a blacklist.

Beyond the three major credit bureaus, there are a number of credit reporting agencies that track different aspects of consumer behavior.

One of the major agencies is Chexsystems, which tracks deposit accounts ( checking and savings accounts). If you have a history of poor financial behavior with a checking account, likeracking up NSF fees, constant overdrafting, or refusing to pay a negative balance, then Chexsystems will flag you.

The next time you go to a bank to open a new account, you could be in for a rude awakening. While opening a bank account might seem like a formality, a poor Chexsystem score will likely ensure that your application for a bank account gets rejected.

Information stays on your Chexsystems for five years, which means that it could be there long before you are able to open another bank account. And if a lender, landlord, or utility company decides to pull your Chexsystems report, it could negatively affect your application with them as well.

There is no credit blacklist, but that doesn’t make having bad credit any easier.

If there were a hard and fast credit blacklist, it would almost be a little comforting. After all, getting your name removed from this blacklist would set you on the path to financial success. Personal loan and credit card applications would come flowing in, and you’d stop having to rely on predatory lenders to get by.

However, the truth is far more complicated. Poor financial behavior will stick with you long after you’ve cleaned up your act, and errors on your credit report could ding your score for things you didn’t even do!

The only thing you can do to improve your credit is to keep practicing smart money habits and a few weird little tricks that can help as well.