Posted 29 Nov 2010
Tighter credit and vast consumer databases has made it more profitable for banks to spy on you, especially if they are giving you credit. Better privacy is becoming essential for your financial privacy.
Banks are looking much deeper into your private financial transactions to decide whether to lend to you or not. The tools that they use are invasive, unnerving, and dangerous. Here are 3 secret metrics that they use to determine credit, how to prevent banks from being able to spy on you, and what to do to have better privacy if you still want credit.
Rent can be a very private transaction with no public paper trail. This is not the case when you deal with a large property management company. Credit bureaus are now collecting data from large property managers and gathering it in their own transactional databases.
If your property manager knows something about you, so do the credit agencies. This usually means social security number, name, how much you pay, your payment history and where you live, even your emergency contact.
Most of this information is bought and sold just like most other database records. So if you think your address is unlisted, but you rent a property with a property manager, think again.
There are at least two ways to get better privacy to prevent this. The first is to deal directly with the owner, not with a property manager. At least use a small mom and pop property manager because they are less likely to have a sophisticated database of renters that they share with other companies.
The second is to use a business entity to rent the property. An LLC can be formed and all dealings with the property manager will be under that name. If you live in a state where an LLC is expensive to form, you can almost always use an out of state LLC to rent a property without having to register it as a foreign LLC.
You can use an anonymous New Mexico LLC, which has a $75, one-time fee and no annual requirements. The only recurring costs will be to maintain a registered agent.
Banks obviously maintain records on their own customers. Banks are now using that deposit history to determine your income and credit worthiness.
To preserve a good history, yet protect better privacy, you may want to set up recurring, regular transfers with a separate account in a separate bank where you will get a loan. It can either be in your personal name or business name. A regular history of deposits and withdrawals can preserve a solid foundation for credit from that bank.
Banks now estimate your balance sheet. They want to see how many assets you have to determine if you are a credit risk or not. If you were to default on any loans, or declare bankruptcy, they want to know that there are some assets there to get.
To prevent banks and other credit institutions from being able to see your assets, use business entities and trusts to hold major assets, like large investment portfolios, real estate, machinery or equipment, cars or large collections.
Using any of these strategies to protect your privacy may impact a lender's willingness to give you credit. You can still get credit if you can satisfy the bank's fears. If you are using business entities and trusts to hold your assets, you will not have as many large assets in your own name. This can look a bit risky to a potential lender.
Any individual asset can be offered as collateral for a specific loan. In those cases, your ownership of the asset is still not public, yet you have satisfied the lender's need for security. Also, in case the bank presses the issue, they will be limited to the collateral that was offered in case of a default. Otherwise, they might be able to go after any asset of their choosing, rather than the asset of your choosing.
Banks and credit agencies are going to try and spy on their customers. That is their nature. You can limit their ability to spy on you and have better privacy by avoiding property management companies, using business entities to rent, using multiple bank accounts, and holding major assets in trusts or LLCs.
Let us know if you have any other creative and legal ways to keep the banks from spying on you when you don't want them to. You might also consider taking other steps to protect your bank privacy, bank offshore, or deal as much in cash as possible.
