We all know life isn't fair. Someone ate that piece of pie you were saving for later. You deserved that promotion more than Esmeralda did. Nice Mr. Jones gets cancer and his house burns down, while annoying Mr. Smith wins the lottery.

But life has recently gotten even less fair for some people -- maybe even you. Join me in the exciting world of credit scores. (Hey, it's all relative. Credit histories are arguably more exciting than taxes or insurance). You surely know that lenders check your credit scores when you apply for loans such as mortgages. (Get great tips on buying a home and special mortgage rates by visiting our Home Center.) But did you know that others are spying on your credit history, too?

A recent issue of Consumer Reports magazine detailed this new development: Insurers, employers, landlords and even utility companies are now checking credit scores. It's true that it may be a welcome development for those with stellar ratings. But for the many who don't, it can effectively get you rejected without your having much of a chance to present or defend yourself.

The article noted:

  • Some utility companies are using credit scores to determine how much of a deposit they'll require from you. Motley Fool Income Investor pick TXU Energy (NYSE:TXU), for example, had been planning to charge some customers with poor credit scores higher rates for electricity. This got bad press, and the idea has reportedly been shelved.

  • Some landlords are checking credit scores to get a sense of whether you'll be a good rent-payer or a headache.

  • Some insurers are referring to credit scores when determining whom to insure and how much to charge. In Missouri, 90% of insurers were checking credit. In Texas, "where 54% of property insurers and 82% of auto insurers rely on credit-based scores, rates on similar policies differed by as much as 400% because of credit-score variations, according to a 2004 survey by the state's insurance department." The article cited a retired professor who was denied the lowest rate for car insurance from Progressive (NYSE:PGR) because of having too few credit cards and not having had a card or loan before age 21. Some states are banning the use of credit reports in insurance.|

  • Some employers are checking credit scores to . well, here it gets a lot less reasonable. A complaint has been filed against Johnson &Johnson (NYSE:JNJ) for allegedly discriminating against a job applicant based on her credit.

So what's so bad about this?
It might seem reasonable for service providers to gather useful data. But there are problems.

Consider employers, for example. Presumably, they're ready to conclude that those with bad scores are likely to be poor employees. This may be true for some, but certainly not all. And anyone trying to land a job to pay off debts and improve a credit history may be ironically out of luck. Similarly, if someone is living on the edge, trying to get by, and has a less-than-pristine credit history, it will make life even more difficult if he or she ends up paying higher prices because of the credit score. In fact, a vicious circle might begin, with the person having more trouble paying bills, having his or her score fall more, and then getting charged even more.

Consider also the scores themselves. What formula is used in determining them? Well, that's a secret. Credit histories and scores are maintained and determined by Equifax (NYSE:EFX), Experian, TransUnion, and Fair Isaac (NYSE:FIC) -- and they're not eager to reveal just what's in their black boxes.

One thing we do know is that some factors include how many credit cards you have. And, oddly enough, having only a few can hurt you. A responsible borrower with just two cards might get a lower score just for that. And this may be enough to cost the person a mortgage. See a problem?

Finally, a sorry fact is that a great number of credit reports, and thus scores, are wrong. So you may be penalized even more through no fault of your own. It's estimated that around 80% (yes, you read that right) of credit reports have errors, and that about a quarter of those are bad enough to get someone denied credit -- or, I suspect, denied an apartment, job, insurance policy, and so on.

Take action!
Don't let your credit score, which is to some degree rather arbitrary and possibly to a great degree incorrect, get in your way. Learn how to check and fix your credit report by taking a peek at our Credit Center.

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Selena Maranjian 's favorite discussion boards include Book Club , Eclectic Library, and Card & Board Games. She owns shares of John son & John son. For more about Selena, view her bio and her profile. You might also be interested in these books she has written or co-written: The Motley Fool Money Guide and The Motley Fool Investment Guide for Teens . The Motley Fool is Fools writing for Fools.