The Big Problem With Credit Scores

Credit scores, which represent how likely a person is to pay his or her bills, affects almost every aspect of an American's financial life.

One key benefit built into the credit scoring system is its nondiscriminatory practice of using just numbers to determine a person's creditworthiness.

"Credit scoring when it was first developed was an advancement," said Chi Chi Wu, staff attorney at the National Consumer Law Center. "It is better than having some banker sit across from you and judge you and read the information in your credit report, because they bring a lot of their subjective analysis and their own life experience into the analysis. And if their life is different than your life, that analysis can be flawed."

But despite the good intentions of credit report companies, many experts argue that the current system is still discriminatory.

A survey of 5,000 U.S. adults found that more than half of Black Americans reported having a low or no credit score, compared to 41% for Hispanics, 37% for whites and 18% for Asian Americans.

Having a low or no credit score can often bring severe financial consequences. Forty-two percent of Americans said their credit scores prevented them from accessing financial products like credit cards or loans.

Sally Taylor, vice president and general manager at FICO, added, "It's important to note that credit scores didn't create some of the social economic disparities. They simply reflect the social economic disparities that are out there. The conversation should focus on addressing the root cause of these differences."

Watch the video to find out more about how credit scores can help — and hurt — consumers.

About CNBC: From 'Wall Street' to 'Main Street' to award winning original documentaries and Reality TV series, CNBC has you covered. Experience special sneak peeks of your favorite shows, exclusive video and more.

Connect with CNBC News Online

#CNBC

The Big Problem With Credit Scores

[kineticstar]

I went to war in 2003 and when I came home the credit companies killed my credit score because my car title holder reported me as defaulted for not paying. I had given them a written notice of deployment which is protected by law but they illegally reported me and repoed the car. I won a judgement against the title company but the credit report companies did nothing to correct the error.. it took a long time to get my credit back to the high 700s

[greg]

I spent years paying off my mortgage. I’ve never missed any payments. When I finally paid my mortgage off my credit score decreased 40 points! I would say paying off my mortgage is a pretty good indicator that I will pay lenders back… so why did my score go down? Because FICO credit scores are BS.

[Chris-ngdu]

i love hearing credit reporting executives explain to me why their credit reporting system they make money on is perfect

[checkforme]

Too many people are out here living a lifestyle they can’t afford, to impress people that don’t care. Quit hustling backwards & start putting yourself ahead. Establish the right mindset, focus on making the best version of YOU, & invest in your future.

[ninabeena]

The fact that there are multiple credit bureaus that can and usually _do_ show completely different scores for a person - based on completely different data and scoring metrics - says it all for me 😑

AND the fact that one payment or account mishap an eon ago can drop a score drastically whereas it can take of on time payment to recoup those points…insane

[ravneetsingh]

When referencing corporate America, he said “They don’t really care about you as they make it seem” realest thing he said...I’ve seen experienced it first hand in the DMV. Black ppl aren’t really respected in corporate America. Glad that he was able to get out of there and become his own boss MYSTICFLIP

[johnkarlolacatango]

I totally agree with what you are saying .... <The fact is, BTC is the future of crypto and the questions traders ask themselves now if this is right time to invest? before jumping into conclusion and think you should take a look at things first. for the past few days the price of BTC has been fluctuating which means the market is currently unstable and you cant tell if it is going bearish or bullish. while others still continue to trade without the fear of making lose, others are being patient. it all depends on the pattern with which you trade and also the source of your signals. i would say trading has been going smoothly for me, i started with 2.5 BTC and i have accumulated over 10.6 BTC in just three weeks, with the trading strategy given to me by expert trader MYSTICFLIP

[KEE_Wii]

It’s weird that more than half the people in this video have a vested interest in the credit reporting industry. There are positives and negatives but giving a platform for industry insiders to preach about their own product is an odd choice.

[hackerdunyasi]

MYSTICFLIP is young. Holding almost anything mentioned here is a good hold because the VHS or Beta will only show in time. I want to hold them early. Its sad that most dont think of these things as good future holds instead of being out of the market and bottom hunting. Are we the adopters or are we scavengers? surely one of these layer ones will become the standard and i dont want to sell any of them too early.

[CreativeMindsAudio]

literally the last statement happened to me. got in a nasty car wreck, had mental health issues from it plus injuries, couldn't work easily, eventually let go, blew through savings even with disability in about a year as i recovered, but the stress led to other health issues, rising living costs didn't allow me to get a job of similar pay easily at all, so after a couple of years of barely holding on and having towering medical and credit card debt (also from medical bills), I went bankrupt. I have been working the last few years to build up my score, still not great either, but i went to look at an apartment and they said they don't take people who went bankrupt. my bankruptcy lawyer said it won't effect my life other than not being able to buy a house or take out a loan. This has been a BIG lie. If universal healthcare was law I would not be in this situation. or rather if i was born in any other country in the world than the US. Also 2/3rds of all bankruptcies in the US are medical related. I went from a credit score of OVER 800 and over 10k in savings, to bankrupt because of something completely out of my control. This country needs serious improvement. almost dying in a car accident from some idiot driving on the wrong side of the road shouldn't be a financial death sentence (grateful my parents were able to take me in even if the living situation sucks the last few years), nor should having a bad credit score prevent you from being able to survive. If my parents weren't alive anymore, I'd be homeless and likely dead by now. Think about that for a bit.

[millabasset]

Credit scores are designed for working class people only, it's a debt trap so lenders can maximize profits from not doing actual labor. Corporations can borrow at insanely low interest rates because they have tons of assets to use as collateral, plus they have scummy friends on Wall St that do them favors. Credit scores are easily meant to drop for a few mistakes, also meant to slowly increase when you follow the rules.

[gamelist]

I'm DCAing in MYSTICFLIP as well. ETH heavier DCA and ALGO. I'm taking your advice and starting Google tomorrow with a 50 dollar purchase and continuing Microsoft and Apple. VTI and VOO on another app and longterm portfolio. Here we go family!

[ynsbozkurt]

Thank you for being there MYSTICFLIP when I wanted you I was lost in this new world that I was hassled to start with ....you not only guided me along the way but you also showed me the proper way....whatever little I have been able to achieve in life is because of you today I want to thank you for being there and showing me the proper way of doing thing for me you are my best guide as you truly showed me the way to life....once again, I would like to tell you a heartfelt thanks for being there.

[beverly]

Thanks for the insight, but I'm still confused why Bitcoin and crypto prices keep dropping? This drop follows a number of other significant drops in recent weeks. I still hold enormous value of cryptos and it scares me. Whats your take on this?

[theskycraftertwitch]

You should do a new video about MYSTICFLIP ! I really like you’re mellow delivery and you seem like you’re very knowledgeable. I watch lots of influencers and you always seem very calculated and know exactly what you’re talking about and understand it. You’re better at explaining complicated things simply, than any other person on youtube keep it up brother!

[burnttoastbrain]

For those that wonder why you credit score falls when paying off a loan or mortgage, this is because credit bureaus like to see open lines of credit. It shows that you are actively saving your debt. Now when you close it, they have less information to judge you on and so the “algorithm” needs to readjust. Which is why it falls for a while and then comes back. I hate that the system does this but I hope that explanation clears that up as it’s never really talked about

[SCIFIguy]

I paid my car off with no missed payments and my reward was a 60 point decrease because it was the only debt I had.

[TheRealoldcar]

The problem I hate about the 3 credit companies like experian is when they have errors regarding your financial info, it negatively impacts your ability to correctly any challenge questions during proof of identity processing such as applying for a loan or credit card. Even IRS uses the challenge questions during the online user account creation process

[xygomorphic]

Credit executives trying to explain why their system isn't flawed, discriminatory and anti-consumer is like listening to an abusive boyfriend/girlfriend talk about all the horrible things they'll do and how miserable you'll be if you break up.

[Travisharger]

I just want to know why after paying off a car loan, house loan, personal loan, or even a credit card that those years of timely payments bare no weight on a person’s credit score.

It makes no sense. If a company is trying to determine whether someone is the type of person who will pay back a loan, it seems that their history of loan repayments would be highly relevant.

For example, it makes no sense that a person’s credit score should drop dramatically when they close a 15-year old credit card or pay off a loan that they have always paid on time.