Thursday, December 22, 2011

No Brainer: Credit Score Reform

Lynn Parramore:

Credit scoring has some predictive accuracy, but not nearly enough to justify its influence. In old-fashioned risk evaluation, a loan officer at a bank would sit down with an individual and study the typical and atypical factors that make up a person’s credit history. Then he or she would make a judgement about credit worthiness that incorporated what wasn’t in the statistical models, as well as what was. Obviously, you can’t rapidly and cheaply assess credit risk on tens of millions of people using personal interviews. And so now we have a fast, cheap, effectively hit-or-miss system that can prevent you from renting an apartment or getting a job. The motivation of the industry is now less about actually finding out if you’re credit worthy, and more about finding out how lenders can make profits off you.

I'd say one of the biggest things would be forbidding potential employers from considering credit scores. Anything that makes it difficult, or impossible, for debtors to get jobs that would allow them to work their way out of debt is deeply perverse and immoral.

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