Davies brings up an important facet of credit scoring consumers often overlook: A lender's point of view. It doesn't matter if you have 10 people willing to stand up and say what a reliable person you are, despite that collection account you have. A credit score doesn’t incorporate personal references or any subjective evaluations of your character. Potential lenders look at a credit score because, from their perspective, it’s very risky to give money to someone with a history of loan repayment trouble, and they are looking for a simple way to quantify that risk.
"Try to think like a lender for a minute," said Steve Ely, CEO of eCredable, an alternative credit bureau geared toward helping people with no credit history establish one. "If a stranger came up and said, 'Can I borrow $20,000 for a car?' your first reaction would be, 'Absolutely not.'"
Even the most ardent statistician will tell you statistical models like credit scores are rarely perfect. Many consumers have characterized credit scores as particularly unfair.
“We are FORCED to use credit, even if we neither need to nor want to. If we do not use credit, we will have no credit score and be forced to pay too much for home and car insurance,” a Credit.com reader commented last year.
He makes a good point: In a way, credit is a game you have to play. Whether or not you want to use credit, not using it can have a big impact on your life. One of our readers experienced this firsthand when he fell behind on his rent and credit card bills because he got sick. His credit score fell from 637 to 528.
“I can’t get an apartment again because landlords use the crediting system to determine whether they will rent to you or not,” he commented on a Credit.com post. “I am a second year grad student with a really good job. I don’t know what to do about these credit issues.”
When asked about the fairness of credit scores, several industry experts hesitated, and ultimately responded by essentially saying, "It's not that simple."
"I truly think that they are both fair and unfair, depending on what perspective you're looking at and how deep you want to go into that question," said Barry Paperno, a retired credit professional who has worked at FICO, Experian, Bank of America and Credit.com, where he was a writer and credit expert.
The exclusion of context is the main factor that levels the playing field of credit scores. Your name, age, race, marital status, income, education — none of that goes into the score. Without all that, you're left with nothing but a log of how you've used credit in the past. This lack of history or context indeed does seem unfair to many. However, credit experts will likely argue that objectivity is a crucial element of the model.
"The reality is that credit scores are based on studying millions of credit reports," said Rod Griffin, director of public education for Experian. "The credit behavior that indicates risk is what I think people don't like and what makes us uncomfortable — our behaviors are very predictable."
Plain and simple: People who have defaulted on loans are more likely to default in the future than someone who has never missed a payment. For those who don't think behavior tells the whole story, consider this: Before credit scores, lending decisions were very subjective, meaning your personal relationship to a lender — or even your race or religion — could be the difference between approval and denial.