this post was submitted on 15 Feb 2024
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At least in the US, banks see the full credit report you see, not just a number. Using any of the specific scoring models (FICO X, VantageScore X.0, etc) that are championed by scoring companies or the various US credit bureaus is entirely optional.
This is quite a claim. How easy would it be to detect and verify that credit bureaus are using borrowers’ associated addresses substantively in their nationally deployed scoring models? I’d wager a college student with an excel spreadsheet and a one-line mailer could do this in a single semester. Now consider the CFPB auditor, with direct records access. How long would that take?
Again, I respectfully suggest thinking these conspiracies through. Credit reporting agencies are fancy bookies in the end, right? They live and die by the legitimacy of the service they offer. So if one of their scoring models has worse predictive accuracy because it’s evil, few banks will use it. Not even because it’s evil, just because it sucks.
They are. In the US, it’s the Fair Credit Reporting Act. In Germany, I think it’s tied to the EU Credit Servicers Directive.
I don’t enjoy defending credit bureaus of all things but conspiracy theories like the ones you’ve described distract from real systemic injustice and disrupt real collective action.
Edit: changed localized phrasing and content so as to not accidentally come across as disrespectful or dismissive.
Well in Germany there is currently an ongoing dispute because the main credit scoring company refuses to disclose the details of its scoring algorithm.
I would also disagree on the banks interests there. The banks don't see the customers they loose because of an overly restrictive scoring model. Also for them to see things like discrimination based on names they first would need to develop a sense to question their own prejudices. Something that white people in Germany, and given the constant issues of racial discrimination, i'd dare to claim in the US too, struggle with extensively.
I want to ask on this though:
Do you mean the report provided by the scoring company? Or is there a national register, where all your contracts, credit cards, bank accounts etc. are stored and all banks can access it? That is what i mean. W.o. the scoring company, the bank only knows about the business you have with them and what you disclose to them. They don't know wether you have an overdrawn credit card with a different bank. At least that is how it is in Europe.
I hadn’t heard about the dispute in Germany but found some articles about it. If I’m reading correctly, I would say practices were definitely not more responsible in the US, but the history of disputes here may go back a bit further, with a slew of regulatory reforms we benefit from today — namely FCRA, TILA, BSA (1968-1970), ECOA, FCBA (1974), RFPA (1978), and FACTA (2003).
I definitely agree regarding the universality of blindness to such biases. I suppose automated credit decisions (based purely on scoring models) might have a better shot at eliminating the factor of implicit biases in human agents. Even so, there is a lot of debate over here about how best to filter data that reflects biases and also what data is currently being ignored due to biases, because any algorithm that solves these issues, in part or whole, allows better value capture and increased revenue.
Perhaps, but even if their stakeholders don’t notice or care about discrimination at all, they do take notice when a competitor scoops up a portion of the market they failed to realize due to biased/inferior analysis. After all, the original goal of credit scoring was to increase objectivity and predictive accuracy by reducing bias for the sake of better (more profitable) lending decisions.
To your question re: the credit reporting system in the US, it sounds like it works a bit differently here. There are credit bureaus (sometimes called “reporting agencies”) such as Experian, TransUnion, and Equifax (“the big three”). They functioned historically as lending history aggregators, but now also have scoring models they develop and sell. There are also companies who specialize in scoring models, but they use data from the credit bureaus. These companies often tailor their models to specific markets.
In general, if you apply for any form of credit, the lender formally submits a requisition (a “hard inquiry”) for your file (a “credit report”). Only very specific information is allowed in that credit report, and it must be made available to you at your request (free annually, otherwise for a nominal fee). There are other situations where credit scores can be ordered as a “soft inquiry” without the report, and there are particular rules and restrictions that apply, but the lending history contained in your credit report is what banks and lenders routinely use for applications, even automated/instant credit decisions.
One hole in your "if it's terrible banks wouldn't use it" Equifax still exists