8 February, 2018
Big Data Vs. The Credit Gap
There’s a catch-22 at the core of the U.S. financial system: To get credit, you need to already have established a credit history. Millions of Americans never find a way around the contradiction, and as a result, are locked out of things like credit cards or student loans that the rest of the population can take for granted.
Banks and other financial companies usually rely on the three major credit reporting agencies to decide whether to let you have credit, using something called your FICO score, an algorithm based on your credit history. No credit history; no FICO score. (If you have a thin credit history or a bad score, you might be able to get a car or a loan, but you will pay higher interest rates and fees.)
But not having a credit history is not the same thing as being a credit risk. In fact, many people without credit histories may be very good credit risks; they’ve figured out ways to pay rent, buy groceries and keep the electricity on without the convenience of cards or other forms of credit.