"You can make a rational justification, but I
haven't seen much proof," he says.
Still, it makes sense to him to expand the use of
credit scores to such areas as employment screening.
"It is uncommon to counsel individuals with financial
problems who don't have other kinds of problems," he says.
"You're more likely to miss days at work, be less productive
on the job, as well as have marriage and other relationship problems
if you are struggling financially. It makes sense that if you have
a low credit score that you are more likely to have problems in
other areas of life.
Employers looking to screen a large number of applicants
could easily see a credit score as an effective way to narrow the
field, Oleson says.
"If I'm looking to hire someone and 50 people
look exactly the same on paper, I can filter through applications
and see who has that extra baggage," he says. "It seems
like money management is an easy way to filter people. There's this
line drawn for people who do it well or don't do it at all."
The biggest problem, of course, is the elimination
of the human side of the decision-making process, Oleson says. Two
people side by side could have the same $5,000 in credit card debt.
But one of them could have run up the bill on a Spring Break bender
while the other is a single parent who got laid off and used credit
cards to feed her child.
Customized credit scoring
One trend in the use of credit scores that consumers should pay
attention to is the tendency of lending institutions to overlay
their own underwriting criteria on top of the score. The result
is that a score will mean different things to different lenders.
A score of 680 might be seen as average to one lender, but as quite
good to another. The bottom line: If you don't like what you're
hearing from one lender or credit card, go shopping.
Of course, every system has its pluses and minuses.
As Oleson notes, if you have good credit, the system makes things
easier for you. If you have poor credit, it can be a barrier to
getting a break.
Harvey Warren, co-founder of the Coalition for Economic
and Social Research, says that while credit scoring is a better
system than the "financial chaos" of having no predictive
model, he has serious concerns about them.
The problem, he says, is that while mortgage applications
still get a good deal of personal attention, many other credit issuers
don't look at anything except the score before giving an approval,
particularly since a lower score translates into a higher interest
rate. He sees a correlation between their burgeoning use and the
record-breaking levels of consumer debt.
"When a guy calls me and says he has $850,000
in credit card debt on 61 cards, does [the system] work?" he
says. "Is it a good system? Bankruptcies are at an all-time
high ... Maybe the people who do the card issuing and marketing
and checking aren't up to the task."
Leslie Hunt contributed to this story.
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