When I first started writing about credit scores more than a decade ago, few
people knew what these three-digit numbers were or how they worked.
Today most people have at least a vague understanding that credit scores
are important. But they often don’t realize how important—until they get
turned down for a loan or an apartment, or wind up paying more interest or
higher insurance premiums than they expected.
The primary purpose of this study is to measure the level of disproportionate impact
between credit scores and race/ethnicity, and credit scores and socioeconomic status.
Disproportionate impact is defined as the bivariate relationship between credit scores and
the independent variable of interest, such as race/ethnicity or income. That is, for purposes
of measuring the level of disproportionate impact, no attempt is made to control for possible
confounding variables, or factors that might explain a disproportionate impact should one
During the second half of the 1990s, mortgage underwriting increasingly incorporated
credit scores and other automated evaluations of credit histories. As of 1999,
approximately 60 to 70 percent of all mortgages were underwritten using an automated
evaluation of credit, and the share was rising2
The automated quantification of the information in credit reports has not simply been
used to decide whether or not to extend credit, but has also been used to set prices and
terms for mortgages and other consumer credit.
Supporters of credit scoring note that credit scores have statistical validity, and are
predictive of repayment behavior for large populations. However, this does not mean
that credit data are error free, nor that credit scoring models are perfect predictors of
individual creditworthiness; it only means that they work on average. While the systems
do present an accurate risk profile of a large numbers of consumers, data users who
manage large numbers of accounts priced by credit risk have a greater tolerance for errors
in credit scoring systems than consumers do.
If you’re like many individuals, you don’t fully appreciate how
essential good credit and money management are until you
Perhaps you’ve been renting an apartment for several years,
but now you’d like to buy a house. Maybe it’s just not worth
ﬁxing your 10-year-old car, but you need a way to get to work
so you need a car loan—fast! Or suppose your house has a
damaged roof and the cost of repairs exceeds your savings.