Millions of Americans are left vulnerable to identity theft and other sorts of scams thanks to the failure of credit monitoring bureau Equifax to keep their data secure. There are a few layers to this scandal that’s infuriating, including the delay in notifying the public and executives using the delay to sell stock. Personally, the most infuriating part is that companies like Equifax have so much of our information and, subsequently, a large amount of power over our lives in the first place.
There’s little reason for me to trust Equifax and other credit bureaus like Experian and TransUnion. They are for-profit businesses, which means it’s all about making money—even if their methods are unfair to consumers (which they are). These companies have systems that are inherently unfair to disadvantaged Americans and, in turn, helps facilitate discrimination that further marginalizes them. Credit scores don’t just influence loan interest rates, they’re increasingly used to dictate where people can live and who will get hired. As a result, they’re essentially profit from creating a legal system of discrimination.
Whether we like it or not, credit scores have become a more-or-less necessary evil of adulthood. Unfortunately, it has horrible consequences for the most vulnerable throughout their lives and the impact on communities of color is one example. As an op-ed by New Economy Project’s co-director Sarah Ludwig in The Guardian explains:
In response to aggressive marketing by the “big three” multinational credit bureaus – Equifax, Experian and TransUnion – employers, landlords and insurance companies now use credit reports and scores to make decisions that have major bearing on our social and economic opportunities. These days, your credit history can make or break whether you get a job or apartment, or access to decent, affordable insurance and loans.
Credit reports and scores are not race neutral. Rather, they embed existing racial inequities in our credit system and economy – to the point that a person’s credit information serves as a proxy for race.
The underlying excuse for using credit reports is that it’s a measurement of personal responsibility, but that’s not true. Due to the ruthless nature of the credit scoring system, perfectly responsible people are penalized for circumstances completely out of their control. If there is a disaster out of your control like suddenly accruing a large amount of medical debt from illness or an accident, your score takes a dive anyway. In a New York Times article about the shortfalls of solely relying on credit scores:
In the aftermath of the bubble, credit scores have remained shorthand for a borrower’s creditworthiness — except that now borrowers need to have high credit scores instead of low ones. And yet, credit scores are no more accurate than any other risk model. There are people with low credit scores who are quite creditworthy. There are people with high scores who aren’t. Treating credit scores as if they were infallible — which is what the banking industry is now doing — is beyond foolish. It is hurting the recovery.
The 99 percent is still trying to recover from the Great Recession, which marked widespread job loss, long bouts of unemployment, and declines in homeownership (especially among black Americans). Between that and the stalled progress on federal healthcare reform that will undoubtedly mark the entirety of Trump’s time in office, the economy makes further proves that credit scores are a poor measurement of one’s responsibility. With Trump in office, I can’t imagine things getting better for most Americans any time soon.
One in five Americans has unpaid medical debt, with more than half of all African-Americans and Latinos carrying medical debt on their credit cards. By definition, people who take payday loans and have uninsured medical debt are struggling, and are likely to miss payments. Missed payments translate into decreased credit scores.
This information – unpaid medical and credit card debt, student loans, and mortgages, as well as foreclosures, bankruptcies, debt collection judgments, wage garnishments – appears on people’s credit reports and lowers their credit scores. And the credit bureaus make humongous profits by selling this information about all of us.
There’s a variety of reasons why credit scoring has become a tool of systemic racial discrimination. The banking industry has long targeted communities of color for their most predatory practices, which contributes to the systemically low scores. As a result, people with low scores are shut out of resources and opportunities like business or home loans because of their credit history. In the end, economic inequality is more easily perpetuated.
As we deal with the aftermath of the Equifax hack (and its likely light consequences), we should start considering effective reforms to limit the disparate impact of low credit scores. Everyone has a right to a job or decent housing; whether someone defaulted on their student loans in the past shouldn’t be a barrier to employment. We’re overdue in reassessing the control private credit bureaus have over our lives and what we can do to stop the harm.