Can the Flaws in Credit Scoring Be Fixed?

That credit scoring and reporting is an opaque and flawed system isn’t a new revelation. But recent news that two of the three major credit-reporting agencies were allegedly providing customers with different scores than they advertised and signing them onto subscription-based services without proper disclosures has hit a nerve with consumers. People aren’t just upset about being misled, but because the news served as a reminder of how vulnerable Americans are to the policies of powerful, private credit-reporting agencies.

A credit score is the most ubiquitous indicator of financial responsibility. Americans rely on credit-reporting agencies to provide a fair portrait of financial health not just for their own reference, but for reporting that can be used by banks and potential employers too. The current system leaves millions with low scores that hinder their financial access despite healthy records of paying day-to-day because of limited credit history. That means they’re essentially stuck.“If you think about the credit-invisible population in this country, their ability to enter the financial mainstream and access affordable credit instead of payday lenders and pawnshops and check-cashing services is tied to what's in their credit report,” says Michael Turner, the president of the Policy and Economic Research Council. “They're caught in the credit catch-22: In order to qualify for credit you have to have already had credit.”