Opinion: To reform the credit card industry, start with credit scores
By Aaron Klein and Lisa Servon May 17 at 9:40 AM Aaron Klein is a fellow in economic studies at the Brookings Institution. Lisa Servon is professor and chair of the City and Regional Planning Department at the University of Pennsylvania’s Weitzman School of Design. She is the author of “The Unbanking of America: How the New Middle Class Survives.”
To make affordable credit accessible to a broader group, let’s fix the flawed scoring system that allocates credit. Congress should start examining this system and aggressively pushing for its improvement. Lawmakers should push for credit-scoring formulas that take a wider range of data into consideration. Paying a mortgage on time improves your credit score, but paying your rent on time does not, because mortgages are tracked and rents generally are not. That’s just not fair.
Credit scoring is a relatively recent phenomenon. FICO debuted its first general-purpose score in 1989, as computing power and data collection made it possible. It is time to advance again. New computing tools allow leaders to use broader information. Alternatives such as cash-flow underwriting eschew credit history altogether and focus on how much money a person regularly has available.
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