Credit Scores, Common Sense and Unexpected Risks

               While driving to work, I heard a news story about the economy (hardly a rarity these days).  The report talked about mortgage rates for home purchases and that despite the low rates, few people are buying or re-financing.  In fact, the reporter noted that those who are “well-heeled” and have money are the only ones able to take advantage of the rates, thus saving more money.

               It is hardly a surprise, but the story should be a warning about the process.  With rates at record lows, there should be at least some people willing to buy or sell their home and help boost the housing market.  Part of the reason that this hasn’t worked is a direct result of the stimulus bill.  Since the stimulus bill, lenders MUST base all decisions on loan approvals on a person’s credit score and very little else.  That sounds reasonable at first glance.  After all, bad home loans started the recession in 2008.  However, if you start looking into it, you encounter some serious problems. 

               First, credit scores are calculated in a way that is kept secret, at least the exact formula.  One of the primary sources for generating credit scores is FICO or Fair Isaac Company and the algorithm used is proprietary.  Each of the different credit reporting agencies may add their own touch.  So, we have a business, protecting their information that is presumably used to create a profit, and our entire financial system rests on it. 

               To make matters worse, you can dispute a bill, but it can still be reported to credit agencies and count against your score, without you even being involved or having a chance to defend the position.  There is no hearing or third party review.  Only a claim that is sent to a collection agency and reported to the credit agencies.  The agencies have a process for you to appeal, in theory, but by that time, the damage is done.  Even if the agency agrees to remove the claim, your credit score is not recalculated immediately.

               A bad credit score could mean that you cannot qualify for the best loan available and spoil a closing on a new home or resale.  So a disputed charge of $100 could ruin a spotless credit history and potentially costs thousands of dollars over the life of a loan or ruin the sale.  Ruining the sale or costing the buyer more are exactly the two things to be avoided if the home market is going to turn around.

                 Traditionally, loan processors would look at each loan application and consider income, ability to pay, down payment and overall reliability to pay bills.  Now it is a quick check on a computer and no human thought or intervention.

               This is an example of a so-called solution that focuses on the process and not on the end result.  If the result, in this case, is to help qualified people buy homes, then the process may actually work at odds with the goal. 

               Focusing on the process or way something should work rather than the target is a very real risk in most organizations.  I’m sure if you think about it, you can come up with several examples that you’ve encountered at work.  Perhaps a meeting where the entire discussion and debate revolved how to change the way something was done, without really changing the outcome.  Or a co-worker coming up with a problem to solve when there was never an issue in the first place. 

               The risks to organizations that fall into this trap are twofold.  One is a loss of productivity as resources (time and money) and focus switch to functions that do not support or meet the strategic goals.  The other risk is that the wrong process could actually hinder the very result being sought.

               In many ways, the security industry provides examples of focus on the process rather than the end result.  Security metrics are tracked, recorded, charted and otherwise documented.  The number of vehicle break-ins, burglaries, assaults and thefts are carefully tabulated and tracked.  But the goal is to prevent these things from happening and all too often, there is very little actual analysis going along with the number crunching and little in the way of proactive planning to change or influence those numbers.  Law enforcement data is often used in the same way.

               So keep the focus on the goal and do not get lost in the process.  Make sure that each new undertaking or project has a clear purpose and review all processes to make sure that the objective remains the focal point. 

Have you wondered how to deal with an aggressive employee or phone threats against a staff member?  Do you have the security system you should?  Are you worried about how your business would handle an emergency situation?  There are lots of worries as a leader in your organization.  Security risks do not have to be one of them.  I am available for business coaching sessions with a focus on security and operational risk management.  The first session includes a money back guarantee if you are not completely satisfied.  For more information, send an email to 

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