📊 credit scores have a far-reaching impact on various aspects of an american's financial life, affecting access to credit cards, mortgages, and loans, as well as housing and insurance options.
🚫 Criticisms of the current credit scoring system point out flaws and misalignments that have significant ramifications for millions of Americans.
🎯 Credit scores are calculated using an algorithm based on payment history, amounts owed, credit history length, and new credit types, with FICO scores being the industry standard used by 90% of top lenders.
🔍 Credit reports and scores are separate entities, with reports containing information and scores representing the grade based on that information.
🎓 While credit scores help prevent lending discrimination and enable efficient decision-making, they can also be affected by historical inequalities and errors, leading to unfair outcomes.
💡 Changes in the industry include incorporating alternative data to improve accuracy and inclusion, but regulatory changes are being considered to address concerns and protect consumers.
💳 The key to maintaining a good credit score lies in making timely payments and avoiding excessive credit card debt.
The scoring system has advantages, such as enabling precise lending decisions and preventing discrimination, but it also faces criticism for its potential to perpetuate inequalities and errors in credit reports.
Credit scores, usually ranging from 300 to 850, determine a consumer's creditworthiness, with higher scores being more favorable.