This article is part of United States of Debt, our third Slate Academy. Join Slate’s Helaine Olen as she explores the reality of owing money in America.
Last month, Discover announced it would give consumers free access to their credit scores. No more need to sign up for an actual service from Discover, like a credit card, as in the past. A mere email address would do. It was, Discover executives all but admitted, a marketing play. “I’m not going to say we don’t want to be America’s favorite credit card,” the company’s chief marketing officer told the New York Times. “We would love it if they all applied for Discover Cards,” added company president Roger Hochschild in USA Today.
Make no mistake. A credit score is a lure. We care about that three-digit number that purports to measure our creditworthiness. Many of us see it as a measure of our self-worth, not to mention the character of others.
Our credit score obsession is so pronounced Bankrate.com recently found almost 2 in 5 of us might ding a potential date for a less than stellar rating. There’s even a dating site, the less than subtly named Creditscoredating.com, that promises “to match you with the love of your life based on your financial compatibility.”
No surprise, few of us want to admit—even to ourselves—the possibility that we enjoy anything less than excellent credit. A 2012 survey discovered that almost two-thirds of respondents who were in debt still believed their credit could be described as “excellent” or “good.”
Our credit scores, ourselves? “People yearn to be scored,” says Frank Pasquale, the author of The Black Box Society and a professor of law at the University of Maryland. “It’s some new way of showing themselves as trustworthy, and as good citizens.”
In one way, this makes sense. Credit scores, once a little-known corporate measurement, are now used by everyone from credit card issuers to insurers to determine whether they will issue you credit or a service, and at what price.
Two decades ago, barely anyone outside the lending industry had even heard of a credit score. How did we come to define ourselves by this mysterious number? Well, it helps to think of our credit score obsession as the end result of an epic sell job. As Martha Poon, a fellow at New York think tank Data & Society, dryly puts it, “There’s been a long and active campaign to make us aware of these scores.”
Credit scores originated about 50 years ago. The Fair Isaac Corp.—better known to you as FICO—claimed to bring scientific objectivity to the process of giving credit. No more penalizing someone because of race, or marital status, or because a banker didn’t like the way he nodded when asked about his wife’s rumored spendthrift tendencies.
Instead, FICO ranked borrowers on a range from 300 to 850, based on their previous use of credit. What’s considered “bad” credit is a number below 620 while a score above 720 is considered excellent. The lower your score, the harder it is for you to obtain credit, and the higher the interest rate you’ll pay.
This number remained something of an industry secret till the mid-1990s, when mortgage giants Fannie Mae and Freddie Mac asked lenders to use them to determine whether and on what terms to offer loans. In turn, banks and mortgage brokers began pointing to this credit score thing when they explained why they had turned down a borrower or charged a high interest rate.
Consumers began to clamor to see the mysterious number. When the federal government passed legislation in 2003 requiring the credit bureaus to make their reports available to consumers, they also gained the right to see their score. When credit issuers could no longer keep the number a secret, they figured out new ways to profit from it instead. Not only would they score us, they would help fix us too!
FICO, for one, quickly announced a deal with personal finance superstar Suze Orman to market a credit repair kit, one the press release promised would “help consumers enhance their credit and strengthen their financial future.” The ubiquitous Orman got to work. The first chapter of her 2005 mega best-seller The Money Book for the Young, Fabulous, and Broke was all about the all-important FICO score. “If you forced me to pick one single bit of advice that would have the biggest impact on turning around your financial situation, I wouldn’t hesitate for a second. You have to know the score: your FICO score,” it opened.
Credit score ads popped up everywhere. One commercial, for something called FreeScore.com, used buff, handsome men to represent high and desirable credit scores, and a paunchy guy in a hockey mask for the low score.
Yet for all our fascination and identification with our credit scores, the process by which they are determined remains mysterious. While we have the right to see our numbers, we don’t know much more than broad outlines about the proprietary formula by which they are calculated.
In fact, there is not one credit score, but many. While FICO is the biggest player, there is also a service called VantageScore. The three credit reporting bureaus— Experian, Equifax, and TransUnion—create their own scores, using data from one of the two industry giants. There have even been attempts—so far unsuccessful—to use social media like Facebook to judge people creditworthy.
Not only does every ranking authority use a different secret sauce, credit scoring algorithms sometimes treat common-sense behavior as a negative. Not using a credit card any longer and wish to close it out? You’ll likely think you are doing the right thing, but you would be wrong.
So how can we claim credit for a good credit score? We have many, and they vary—in fact, a few years back one study found almost 3 in 10 of us have scores from different rating agencies that are about 50 points apart.
And all this is assuming the algorithm is even using the correct data. Back in 2010, New York Times reporter Joseph Nocera pulled his credit reports, where the data to determine the score originates. The amount of misinformation he found was nothing short of astonishing:
They listed credit card accounts I didn’t have, and failed to list at least one big one that I did have. Two of them noted that five years ago, I was late on a car payment. (I was?) My daughter’s old Brooklyn address was listed as my former address. According to Experian, I was still writing for Fortune magazine. It said I no longer lived in a house that I just bought two months ago. TransUnion, meanwhile, listed The New York Times as my former employer. Currently, TransUnion said, I am an employee of Rite Aid.
Even the studies that purport to show how credit scores reflect our character might well be demonstrating how the greater world impacts us. A recent paper published by the Federal Reserve Board found that people with higher credit scores are more likely to stick with a partner. The researchers say the findings show that “credit scores reveal an individual’s relationship skill and level of commitment.” But a plausible argument could also be made that the higher scores reflect better finances—and surveys repeatedly show that financial troubles are one of the most common relationship stressors out there.
Credit scores are not in the business of measuring responsible financial behavior, or our character. Instead, they all too often simply reflect the society around us. If you lose a job, and can’t pay a credit card bill, what does that say about your moral fiber? What if you were sold on a toxic mortgage during the housing bubble and foreclosed on, something more likely to happen to black Americans than others? Black Americans are also more likely to carry medical debt on credit cards than their white peers, which probably has more to do with lack of wealth and family assets than poor decision-making. The credit score algorithms, by refusing to take discrimination into account, are contributing to its persistence.
But we live in an age of quantification, of bits of data we believe can take previously unknowable facts about us and use them to both track and predict our behavior. Companies like Amazon “stack” employees, ranking them by percentile. There’s legislation in Congress now that would use a formula to give prisoners a score based on their chances of committing a crime if released from jail. In fact, a 2014 report written for the World Privacy Forum tracked hundreds of consumer scores, including ones that assigned people a number based on their likelihood of donating to charities and chances they would take prescribed medications. And unlike our credit scores, we have no right to see those numbers—heck, most of us don’t even know they exist.
In the same way all too many of us view debt through a prism of morality, deeming debt “bad” even when we have it, we see our credit scores as reflections of our characters. Viewed that way, a good credit score is the ultimate accolade our society can bestow. No wonder we’re obsessed.