Credit scoring and reporting system in the United States
Barbara Kiviat did her Ph.D. in Sociology and Social Policy from Harvard University and is an assistant professor in Sociology. Her main focus is on economic sociology and how different cultural and moral understanding creates and justifies market inequality.
She explained that credit score does not explain why someone has defaulted on a loan. A credit score predicts whether someone will default on a loan or not.
If someone is unable to pay their credit card bill during their economic low, this does not mean they are irresponsible. A credit score shows someone’s creditworthiness but they ignore reasons for someone not paying their debt.
Kiviat says that if one can and cannot repay there is more bearing on how you make sense of credit scores. This whole credit scoring system results in racial and wealth inequality in society.
She says that it is hard to maintain a credit score when they have no help from family in times of emergency.
Many racial minorities have to depend on cash and high ARPs because of low credit scores. This results in increased debt and they are unable to pay it off which ultimately affects their credit score.
One solution is that there must be alternate data to report on one’s credit. This is explained through renters and homeowners. While homeowners have their mortgage payments in credit reports which is not in the case for renters. This system helps homeowners and ignores the renters.
Policymakers are concerned with making new changes to make credit scores more accessible and remove mistakes from them.