Credit Scores Are A Scourge, Can We Do Away With Them Please
Worthless yet revered because they uphold the status quo, they’re like the SAT scores of adult life
One of the many areas in life when conventional risk assessment fails is in the amount single women must pay for their mortgages. Turns out that even though single women are actually more trustworthy — they default less often than other borrowers — they are considered higher-risk and so are more likely to get a sub-prime or expensive home loan.
Single women are penalized this way in part because they are apt to have, on average, lower credit scores.
Kris Marsh, a sociologist at the University of Maryland, College Park, said the housing market needs to look at more than just credit scores, because that’s keeping women and people of color stuck with pricier loans for lower-valued homes.
“There still remains a hierarchy in the housing market, one that advantages whites, married or partnered couples, and men,” she said. “We need to consider different or additional rubrics to decide home loans and interest rates.”
Credit scores purport to measure whether an individual can be trusted to pay their bills on time over the next 18 months. But just as BMI can be a faulty and misleading indicator of health, a credit score is a very inexact way of assessing a person’s character — and, unfortunately, lots of people use credit scores in precisely that way.
Let’s break it down.
- Credit scores themselves are not objective. They can vary considerably.
2. They’re full of inaccuracies. One recent student found that as many as 20% of consumers, or about 10 million Americans, are affected by mistakes on their credit reports, and those inaccuracies can be maddening and nigh impossible to correct.
3. Lots of people, ranging from landlords to potential bosses, extrapolate from a credit score and think it helps them understand not merely whether a person can pay back a loan in a timely fashion but whether she is a good, stable, productive person in general. And that’s nonsense. A person with good credit is not a good person, and a person with bad credit is not a bad person. You think that’s self-evident? You are mistaken. From that St. Louis Public Radio piece:
About 60 percent of employers use credit checks to screen applicants, even though research has shown that people with damaged credit are not automatically poor job risks.
4. Though “damaged credit” can befall anyone, it is more likely to befall individuals without institutional and family support. Poorer people, people of color, single women, and people without higher education are all more vulnerable.
States with the lowest number of residents holding Bachelor’s degrees or higher include West Virginia, Arkansas, Mississippi, Kentucky, Louisiana, Nevada, and Alabama — all low credit score states. The most-educated states — Massachusetts, Colorado, Maryland, Connecticut, New Jersey, Virginia, and Vermont — all have median scores above 700. …
Median credit scores, in large part, reflect a person’s ability to use credit responsibly. This ability is directly influenced by access to education, economic opportunity, historical attitudes toward credit usage, changing economic circumstances, and financial support structures — to name a few. Growing up without an understanding of how to use credit responsibly, and in an area full of economic hardship, could statistically reduce your odds of successfully managing your credit.
5. White-collar, educated folks, who usually have higher salaries, enjoy higher credit scores.
Higher salaries can help reduce your debt-to-income ratio (DTI), a key factor in your credit score (in Credit Sesame’s report, the average DTI for men was 17 and for women was 18). Higher salaries can also lead to higher credit limits, and higher credit limits can help reduce your balance-to-limit ratio, or utilization rate. According to Experian, “a high utilization rate is a strong sign of credit risk, second only to your payment history,” and therefore greatly affects your credit score.
Likewise, people with more wealth and more in savings enjoy higher credit scores — and higher life satisfaction, too, because even if money can’t buy happiness, it sure as hell can purchase peace of mind.
Charming, right? The system reinforces itself: if you have more money, you’re more likely to have a higher credit score; if you have a higher credit score, you have access to more money. You can enjoy better jobs, better apartments, and myriad opportunities to save money by paying less for your car insurance, mortgage, credit cards, and so on. All of which tends to make a person happier.
IN SHORT: credit scores reward the rich for being rich and punish the poor for being poor. No wonder Americans love them! They uphold our classist status quo and enable wealthier, more educated consumers to feel superior to everyone else.
Americans pretend that credit scores can be trusted as neutral measures of achievement, like test scores. Actually they function much better as measures of class. Like test scores.
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