What is whimsical and intangible, but can make or break you? The devil? Your credit scores!
As someone who's not from this country, and who's been struggling a bit to play to the rules of capitalism, I have always been amazed by how my American friends view the credit scores as something natural. How they can sanely say the Chinese social credit system is creepy and criminal, while the American credit scores is normal and healthy, is beyond me.
Hear me out – this is something that gets to whether or not you can get a house, a car, a job, and to a certain extent, a spouse. How could you allow the exact details of how it's calculated to be hidden from you?
By disclosing the “formula”, I mean how the EXACT scores are calculated MATHEMATICALLY. What the agencies say officially “35% payment history, 30% amount owned, 15% length of credit history, 10% types of credit accounts, 10% new credit” is bullsht, because it's vague as fck.
When your physics teacher asks you how to calculate kinetic energy, you say: it's 1/2 * mass * velocity square; you don't say “well it's kinda like 30% decided by the mass and 70% by the velocity but also depends on how heavy and fast the object is”. The latter answer is wrong, and useless, yet it's what the credit reporting agencies have been feeding us.
Consider other important numbers in our life, they are more or less exact. When you do your tax, you know EXACTLY how much you need to pay, given your income and spending and such. The IRS doesn't send you a random number saying “this is the amount of tax you need to pay. It's based on your annual income and expenditure, but you cannot ask how exactly we got this number.” When you go for a physical checkup, the doctor tells you your exact blood pressure, cholesterol, etc. He doesn't give you a “health score” of 695 and say “hey, this is your health score, it's based on a few of your important biometrics, but we can't really tell you how we got this score.”
Why is this important?
First, these f*cking scores basically decide my quality of life, thus I deserve to know, much like I deserve to know why I'm taxed for a certain amount. Just the notion of three numbers obtained through an opaque process looming over your head gives the 1984 vibe.
Second, you can never know if there's a mistake, unless it's disclosed. I'm sure we all have experienced a time when the credit score just plummets for no reason. If you call them they'll just say “well it's the new accounts you opened”. Jess, I know there's a fcking correlation, but by THAT MUCH? It's like saying I gained 20 pounds because of the cake I ate last night. How am I supposed to believe you?
Third, you can never know if the scores are BIASED AGAINST WOMEN AND MINORITIES. As a statistician myself, I can tell you that statistical/ML models are not free from inadvertent, if not built-in, bias. Here's an article on ML algos automatically sending blacks to prison:
https://www.nytimes.com/2017/10/26/opinion/algorithm-compas-sentencing-bias.html
Actually, at this point, people do realize that, given everything else being equal, women and minorities do tend to get lower credit scores. It's been going on on mainstream media, but hardly ever cut a dent in the current system:
https://www.bbc.com/news/business-50432634
A few counter-arguments from well-intentioned people (and why they are non-arguments)
Most people just take the credit system as something as natural as air or tax. A few who woke themselves up to the question, unfortunately fall into the counter-argument traps that the credit agencies most likely prepared for them.
Counter-argument #1: “The various credit scoring models are proprietary intellectual property. If they were made public, creditors would be able to calculate the score themselves, and FICO would not be able to receive any revenues. Since FICO does not want to lose all its revenue, it does not make them public.”
Wrong. The Credit Agencies receive revenues not because of their smart “proprietary” scores, but because that they have exclusive access to people's data.
Repeat after me. The Credit Agencies stay in business, not because they know how to calculate the credit scores, but because they have EXCLUSIVE ACCESS TO YOUR DATA.
Think about it. If you were a car-dealer, and somehow you got access to all the historical payment records of a potential customer, and you know that he was late on rent 10 times. Do you need a certain score to know that selling him the car on installment loans is probably not a good idea? The reason you need to get the guy's credit scores from the agencies, is because you don't have access to that guy's history (and rightly so), but the agencies do.
This, alone, will allow them to stay in business, since nothing is more powerful than the monopoly of data. Now you tell me that they need to keep the scoring formulas secret because that's the core competence of their business? Gimme a f*cking break.
Counter-argument #2: The scoring method is not actually a formula, it’s really more of a database which contains the credit factors and the “outcome” (e.g. whether or not the consumer defaulted within two years) for a “test set” of consumers. Thus, for someone with a given set of credit factors, it is able to estimate the probability that any given consumer will have a bad outcome. (This is admittedly somewhat of a simplification, but the point is that it’s not merely a formula which multiplies each credit factor by some coefficient and then adds them up to come out with the score. It’s also why the FICO credit scoring “pie” is nothing but a lie.)
Now, for whatever this word salad is worth, it's yada-yada'ing you further away from the simple, naked truth – any ways of scoring method can be disclosed. Even if it were not an explicit mathematical formula, it could still be made public (and open to your own tests) by publishing as a ML or statistical API. You can't say something is not describable by quoting factors this and estimates that. At the end of the day, if it were so elusive, how come you can still use it?
Counter-argument #3: If it were made public, people would be able to game it. Therefore it's better to ensure people's good behavior by keeping it a secret.
Let me laugh for a minute first. The credit agencies genuinely caring about the virtues of the public? Ha ha ha ha. Very drool.
Even if the credit scoring systems were made public, people cannot game it overnight, much like one cannot game the medical exam by lowering his blood pressure half a month before it. If I try to game the credit system by paying rent on time for seven years, chances are I've actually turned into a person of greater financial reliability.
A few afterthoughts:
We have debunked the “intellectual property” myth, the “not a formula but a model” myth, and the “maintain the public good behavior” myth. Actually, the only reason that I can truly see that the Credit Agencies want to keep their scoring formulas secret, is that they would be flooded with lawsuits from disgruntled citizens, once their scores were opened and subject to tests.
But again, to avoid legal liabilities is not an acceptable reason to the public. It is a criminal system, and thus should be viewed as such.
Also, the stupidity of some people is just beyond comprehension:
(link not included)
“Saaaaaaay whaaaaaaat? There is no secret formula used to determine your FICO score! Your FICO score model uses a formula based on your payment history, the age of your accounts, your credit utilization and the number of recent credit inquiries that you have made. It is no big secret and all it takes is a little research.”
Literally, next time when your math teacher asks you the formula to calculate the area of a triangle, just say “Saaaaaaay whaaaaaaat? There is no secret formula used to determine the area of a triangle! Your triangle area model uses a formula based on the base of your triangle, the height of the your triangle, and a certain fraction that you have made. It is no big secret and all it takes is a little research.” God forbid if you just give the straightforward answer of 1/2baseheight.
Well, on a second thought, this guy might fail elementary school math, but he's proven to be a good pupil of capitalism, and that's all that matters. So, graduation with flying colors! Yay!
Another pet-peeve: how come checking the credit score hurts the credit score? Does checking my health hurt my health? Does checking my SAT score hurt my SAT score? WTF?
Guys, I've put lots of thought in this. Please let me know what y'all think!
TL/DR: The formulas to calculate the credit scores used by the agencies should be made public. Its very secrecy violates people's freedom and privacy, brings distress to people's mental and financial wellbeing, and allows room for bias against women and minorities. The arguments against disclosing (IP, complexity, social behavior) are false.