Credit scoring systems in the United States have garnered considerable criticism from various media outlets, consumer law organizations,[1] government officials,[2] debtors unions,[3] and academics.
[10] Since the 1980s, neoliberal economic policy has created a correlation between the expansion of credit and a decline in social welfare—deregulation incentivizes financing for the consumption of goods and services that the welfare state would alternatively provide.
[21] Discriminatory responses to poor credit create a self-fulfilling prophecy as it raises costs for future financing which increases the likelihood of being unemployed or insolvent.
[1] Racial discrimination also results in impacts on the credit scores and economic security of communities of color—that ultimately, "entrenches and reinforces inequality by dictating a consumer's access to future opportunities".
[43] FICO has defended the system stating that income, property, education, and employment are not evenly distributed across society and it is irrational to think an objective measure would not exhibit these discrepancies.
[20] Tamara Nopper, sociologist at The Center for Critical Race & Digital Studies has stated that to solve the true issue of racism is not just to regulate it, as politics focus on, but to eliminate it in favor of public-owned banks that serve the community instead of shareholders.
[29][44] A related concept of insurance scoring has also been shown to discriminate along racial lines, disproportionately harming black and Latino populations.
[5] The National Consumer Law Center (NCLC) has stated that credit scoring perpetuates economic inequality by controlling access to opportunities in the future as well as important necessities such as employment.
[1] In 2009, TransUnion representatives testified before the Connecticut legislature about their practice of marketing credit score reports to employers for use in the hiring process.
[6] Because medical situations are often unexpected, they can cause an individual or family to experience financial distress, especially when unanticipated or "surprise" bills are unable to be paid.
[6] The debt is reported to credit bureaus due to payment delays, insurance disputes, confusion, or the dysfunctional nature of the US healthcare finance system.
[50][51] Rental application rejections and the inability to find sufficient housing is a well known consequence of credit scores as it leaves college graduates unable to participate in society.
[53] Consumers in the US have very little control over how they are scored and even less ability to dispute unfair, biased, or inaccurate credit report assessments.
[56] CNBC proposed three solutions to the issue of inaccurate reports:[55] A large percent of credit scores are estimated to have inaccuracies.
[61] This has been criticized as it acts as a way to incentivize accumulation of debts and deincentivizes people from financing purchases themselves through saving,[62] as well as normalizes the credit-debt system and consumerism.
[44] The use of alternative data has been pursued as a means to access more consumers, a form of market competition in an industry seeking greater profits.
For example, Golden West Financial abandoned FICO scores for a more costly analysis of a potential borrower's assets and employment before giving a loan.
[75] Jonathan Cinnamon of the University of Exeter states the unfairness of credit scores and how they impeded our ability to function in society:[15] Inability to secure a loan, mortgage, job, or health insurance due to inaccurate placement in a ‘risk’ category is clearly unfair, however the accuracy of the classification is perhaps unimportant in the context of social justice—accurate or not, personal scoring systems ‘make up people’ (Hacking 1999); they produce new social categories of difference and restrict our ability to shape our own sense of self, a clear threat to parity of participation in social life.Jackie Wang of the University of Southern California writes in Carceral Capitalism about how credit scores ultimately make moral judgments that increase inequality:[24] Nowadays, credit scores have a number of often invisible effects on our lives.
Meaningful accountability is essential for predictive systems that sort people into "wheat" and "chaff," "employable" and "unemployable," "poor candidates" and "hire away," and "prime" and "subprime" borrowers.
Procedural regularity is essential given the importance of predictive algorithms to people's life opportunities-to borrow money, work, travel, obtain housing, get into college, and far more.
The act of designating someone as a likely credit risk (or bad hire, or reckless driver) raises the cost of future financing (or work, or insurance rates), increasing the likelihood of eventual insolvency or un-employability.
When scoring systems have the potential to take a life of their own, contributing to or creating the situation they claim merely to predict, it becomes a normative matter, requiring moral justification and rationale.