What your credit score actually means
Vox・2 minutes read
Credit scores are crucial in the US, affecting millions who lack access to key services due to missing scores derived from personal financial data. Factors like payment history and account balances influence credit scores, impacting loan approvals and interest rates.
Insights
- Credit scores are crucial in the US, affecting access to housing, insurance, and employment for millions due to their absence.
- The history of credit assessment in the US evolved from personal character judgments to data-driven credit reports, but discrimination concerns prompted regulatory actions like the Equal Credit Opportunity Act.
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Recent questions
What are credit scores used for?
Credit scores are used to determine an individual's creditworthiness, affecting their ability to secure apartments, car insurance, and jobs.
How are credit scores calculated?
Credit scores are calculated based on factors such as credit history length, account variety, payment history, account balances, and credit card usage percentage.
Who compiles credit histories in the US?
Three credit reporting agencies compile credit histories for over 200 million Americans, using data from various lenders to determine credit scores.
What is the range of credit scores in the US?
Credit scores in the US range between 300 and 850, with higher scores indicating better creditworthiness.
How have historical credit systems in the US evolved?
Historical credit systems in the US transitioned from personal character assessments to written credit reports post-Civil War, leading to the development of modern credit scoring methods.
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Summary
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"US Credit Scores: Impact, Reform, Discrimination"
- Credit scores are essential in the US, with an estimated 45 million Americans lacking one, hindering access to apartments, car insurance, and jobs.
- Credit scores are derived from credit reports containing personal data and payment history from institutions like credit card companies and student loan providers.
- Three credit reporting agencies compile credit histories for over 200 million Americans, with data from various lenders determining credit scores between 300 and 850.
- Factors influencing credit scores include credit history length, account variety, payment history, account balances, and credit card usage percentage.
- Credit scoring companies like FICO and VantageScore sell scores to landlords, lenders, and employers, impacting loan approval and interest rates.
- Historical credit systems in the US relied on personal character, transitioning post-Civil War to written credit reports assessing trustworthiness and payment habits.
- Discriminatory practices in credit reports, including race, gender, and sexuality biases, led to the Equal Credit Opportunity Act regulating credit information use.
- Efforts to reform the credit system include outlawing credit score use in non-lending decisions, promoting informal lending circles, and exploring alternative credit scoring methods.
