By MARY ELLEN KALUZA
Americans are obsessed with their credit score – checking it daily, paying for apps, even sending screenshots to potential mothers-in-law. The score is a source of pride and boasting. It can also be a source of shame and low self-esteem. It feels like that 3-digit number defines who we are. Have a good score? You’re golden. Have a distressed score? You’re tarnished.
Your credit score is based on information in your credit reports. Essentially it is your grade on what has been reported. That grade will determine if you can rent or buy a home, get a phone plan, get a job or promotion, have a decent interest rate on your car loan, how much you pay for insurance, and who will marry you. I tell my daughter she doesn’t marry anyone until I see their credit report. Mostly I mean it as a joke, but one partner’s poor credit score can hold the couple back from pursuing goals. It is not a joke that life is hard and expensive with a low credit score.
The whole idea of buying and selling information about potential borrowers’ creditworthiness goes back to the late 1800’s. The score we all know and love or hate – FICO – came into widespread use quite recently in the early 1990’s when the practice of risk-based lending, charging higher interest if the borrower was deemed a higher risk, took firm hold in the lending world. Theoretically, lending decisions based on the score are made without interference of personal biases.
The scoring system eliminated some, certainly not all, of the unfairness and prejudice that goes into a decision to extend credit or not. The score does not tell the backstory – was there a job loss? An illness? Death in the family? Divorce? Youthful ignorance? And, it does not address the persistent inequities of colonization and slavery that give great advantages to some and rob others of those same advantages.
Despite its failings, the credit scoring system is not going away any time soon. (There are rumblings in the media about “shutting down the credit bureaus”, but there’s a lot of money in buying and selling our personal data so that will be a battle.) The good news is, anyone can improve their score. You don’t have to pay a credit repair service either – they don’t do anything you can’t do yourself. And scam outfits abound – beware. Free advice is available at non-profit credit counseling agencies. Get started with this great blog by my colleague, Tasha Symiczek, a Certified Financial Counselor for LSS Financial Counseling:
And, remember, you are not your score. You are your whole story with all its woes and triumphs. Let a good credit score be one of your triumphs.
P.S. Any opinions expressed here are strictly mine – not the alley’s or my employer.
Mary Ellen Kaluza is a Certified Financial Counselor with LSS Financial Counseling which offers free counseling for budgeting, debt reduction, credit review, student loans, housing, and more. Website: www.lssfinancialcounseling.org
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