We all know life isn't fair. Someone ate that piece of pie you were saving for later. You deserved that promotion more than Esmerelda 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. You surely know that lenders check your credit scores when you apply for loans such as mortgages. But did you know that others are spying on your credit history, too?

Your credit is popular
That right: Insurers, employers, landlords, and even utility companies are now checking credit scores. It's true that it may be a welcome development for those who have 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.

It's easy to understand why your credit score is useful information for businesses. Utility companies want to make sure you'll pay your bills, and if they think you won't, they'll ask you for an upfront deposit. Landlords don't want to have deadbeat tenants on their hands. Insurance companies want to gauge whether their policyholders are likely to commit fraud to make a quick buck. And employers look at credit scores as a measure of trustworthiness -- and to steer clear of those who may be distracted by personal financial problems.

Using credit scores has become quite controversial. Just last fall, several insurers, including Safeco (NYSE:SAF), Progressive (NYSE:PGR), and Travelers (NYSE:TRV), spent hundreds of thousands of dollars successfully fighting a proposed Oregon law that would have prevented them from using credit scores to set insurance premiums. While that measure was defeated, the issue is far from decided throughout the country.

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 that person ends up paying higher prices because of a credit score. In fact, a vicious circle might begin, with the person having more trouble paying bills, watching the score fall further, 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 won't tell you exactly how they come up with their magic numbers.

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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This article was originally written by Selena Maranjian and published on October 5, 2005. It has been updated by Dan Caplinger, who doesn't own shares of the companies mentioned herein. The Fool's disclosure policy always gives you credit.