How the Credit Score System Fails & Gate-keeps

In a world where credit scores can dictate the trajectory of one’s life, the story of a mother in San Francisco struggling to secure an apartment sheds light on a pervasive issue affecting millions.

After bravely leaving an abusive relationship, the mother found herself in a bind. Despite securing a stable job and saving enough for a down payment and last month’s rent, her journey to provide a safe home for her daughter hit an unexpected roadblock.

Her financial readiness was overshadowed by her lack of a credit score, a critical gauge often used to assess tenant reliability. This detail, gleaned from an interview conducted by sociologist Frederick Wherry, paints a vivid picture of her struggle.

Today, an estimated 45 million Americans are invisibly shackled by the absence of a credit score, a number that has become a passport to modern life yet remains elusive to many.

The Genesis of Credit Scores

Once celebrated as a tool to democratize lending, credit scores have morphed into a gatekeeper of opportunities. Initially designed to minimize human bias in lending, these scores are now pivotal in determining access to housing, employment, and insurance.

But how did a concept intended to level the playing field create new inequalities?

How Credit Reporting Fails

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Image Credit: TierneyMJ/ShutterStock.

At the heart of this system are three major credit reporting agencies, each holding the financial histories of over 200 million Americans. These agencies collect data from large lenders, but everyday payments like rent and cell phone bills are often overlooked.

This oversight can disproportionately impact those who, despite being financially responsible, don’t engage with traditional credit products.

Credit scoring companies like FICO and VantageScore use these reports to calculate scores ranging from 300 to 850. The criteria for these scores can vary, with some algorithms placing more weight on the length of credit history while others focus on the diversity of accounts.

However, this system has a fundamental flaw: it often fails to capture the complete financial picture of an individual.

The Historical Baggage of Credit Scoring

One must delve into its historical roots to fully grasp the current credit system.

The shift from interpersonal credit systems, based on personal reputation and community trust, to algorithm-based scoring has not been without its challenges.

This transition, catalyzed by post-Civil War societal changes, led to the emergence of credit reports and scores. However, these new systems were not immune to the biases of their time, often excluding women and minorities from fair access to credit.

The legacy of these biases is still felt today.

Employment history, neighborhood demographics, and other indirect factors can serve as proxies for race or gender in credit scoring (PDF). This systemic issue has far-reaching consequences, affecting access to affordable housing, fair loan rates, and employment opportunities.

Rethinking Credit

Addressing these disparities requires a multi-faceted approach. Some lawmakers advocate prohibiting credit score use in non-lending decisions like employment and insurance.

Meanwhile, innovative solutions, like recognizing rent payment histories and formalizing informal lending circles, are emerging to help build credit for those traditionally excluded from the system.

Enhancing financial literacy is crucial in navigating this complex landscape.

Understanding loan terms, exploring refinancing options, and being aware of rights like student loan forgiveness are steps toward more informed financial decisions. Websites like offer resources to transform confusion into confidence.

Related: Unwanted Student Loan Provider Change: A Credit Score Nightmare for One Woman

Collective Action for Fair Credit

While individual strategies for improving credit scores are valuable, systemic change is necessary for a truly equitable credit system. This change requires a collective effort to rethink and reform the structures that govern financial access in America.

Only then can we ensure that credit scores serve their original purpose: to provide fair and equal access to financial opportunities for all.

Martha A. Lavallie
Martha A. Lavallie
Author & Editor | + posts

Martha is a journalist with close to a decade of experience in uncovering and reporting on the most compelling stories of our time. Passionate about staying ahead of the curve, she specializes in shedding light on trending topics and captivating global narratives. Her insightful articles have garnered acclaim, making her a trusted voice in today's dynamic media landscape.