To see this development in a positive light is to ignore the fact that extension of credit is not - as conventional wisdom would have you believe - solely about your ability to pay. Rather in the best of cases it is based on a balance between potential profits on interest as well as minimizing the risk of default. But If we have learned anything in the last 6 years it is that lenders have increasingly shifted the balance towards profits over the elimination of risk. The proof is in lenders actions. Creditors now consider late fees in their profit models. Mortgage companies made millions of loans to people who were not worthy of a carrying a loan based on their credit and there income. The risks were shifted to other sectors of the economy or to the public sector. In many cases the risks were simply ignored, for short profit gain with little regard for the sustainability of the companies themselves.
Do people really have a hard time getting credit in the U.S.? They may have a hard time getting good terms, but predatory lending is still the norm. The article mentions college students. This is a perfect example. This is a demographic group who's members are often unemployed or working low paying jobs, have little or no established credit history, and a high statistical risk of default. Yet your typical college student is inundated with offers for credit. High interest credit, but credit nonetheless.
Although, a personal anecdote does not constitute a trend, I will still offer a little personal experience anyway. I'm a big fan of same as cash deals. The ones where if you pay the balance off within some time period, you pay zero interest. However, I have never failed to pay off the balance prior to the interest coming due. In essence I have used them a free personal loans. I keep the money in my bank earning interest, the store gives me the product and loses out on the benefit of having all the money for the product they sold me and earning the interest themselves. Of course they offer these plans because statistically most people will fail to pay off the balance in time and end of paying the interest. Despite the fact that I have kept excellent credit and have always held a good stable job throughout my adult life, I have been turned down a number of times for these kinds of deals. If credit worthiness or income were the issue, I would have no trouble getting the loan. This is despite the fact that I have had no trouble getting preferred financing on secured and unsecured loans from credit unions and banks in the past. On several occasions I actually called to contest the card or loan being turned down. In each case I was told the same thing. My credit history indicated an established history of paying off loans on time or early, as if that was a negative thing! I was told that It would not be profitable for the company/store to extend me a same as cash deal. This completely flies in the face of conventional wisdom, but does illustrated the reality that the extension of credit is a more complex process then it seems. It makes business sense too if you understand their motivations. Why would a store want to extend a deal to whose purpose is to trap the consumer into paying a high interest payment on some item, when that person has a history of not falling into the trap? They also assume that if I don't get the same as cash loan I will simply pay for the item. Its a risk they take because the real profit is not in selling me an item, but in selling me the credit to buy the item. This is basis for our finacialized economic system. The U.S.'s chief product today is consumer debt, not consumer goods.
This data will not be used to make loans to people that otherwise have little established credit history. They already give these people loans. Rather it will be used to more accurately predict which customers will be most profitable. These high profit individuals are those who carry high balances on multiple revolving accounts, and pay late. The exact opposite of people with good credit. Creditors in collusion with the government have already made it difficult to default and are continuing to do so, so traditional credit worthiness is in essence becoming less important. The future (actually the present too) is permanently indebted customers who pay interest (rents) to creditors indefinitely. This technology will be used to better identify those potential members of new indentured class.
FICA = Federal Insurance Contributions Act (aka) payroll tax.
I know you were referring to FICO, although I disagree with your points. FICO score is a quantitative representation of an intangible. In this case it is the likeliness of an individual to pay back a loan. It is, as you allude to, based on more than repayment history alone and includes things like amount of credit, high balances, etc. These are all things that are found to statistically correlate to a higher likelyhood that you will default on your debt. The score does not represent whether or not you will be a good customer. A good customer is sort of an amorphous concept. Yes, it may include how likely you are to pay your debts, but it includes the other things you discuss like how likely you are to add to the profitability of a business. It also may represent how much assistance you require from staff, are you difficult, are you loyal, etc. The problem with "customer-worthiness" and the reason we have quantitative measures like FICO is peoples definition of "customer-worthiness" can be extremely biased. Race and gender, for example have historically been used as a factor in judging "customer-worthiness" and still is in many cases; just not openly. Unfortunately people receive a different quality of customer service based on appearance and socioeconomic background all the time. One intended benefit of numerical scoring like FICO is that it is based on standard metrics that are supposed to be divorced from bias. FICO is a metric used across the industry in and of itself. This is superior to having to rely solely on the good or bad will of some loan officer. The good old day of a gentleman handshake sealing the deal were mostly good days so long as you were a white male. Of course lenders are not forced into using solely FICO scores or FICO scores at all. And you are right in that they, and credit reports in general, have begun to define people. I think that this is an awful trend. Its one of the many aspects of modern life the makes me want to move to the wildness and live like Grizzly Adams. I don't want to be defined by a number. Not my my FICO score, and not by Klout score either. FICO ignores circumstances, bad luck, or identity fraud (although its effects can be contested). It is far too inelastic as well. A college kid living off of ramen noodles may have a completely completely different real credit-worthiness when they graduate and get a good paying job (assuming they can). It will take a while however for their score to catch up. Divorced women who have not worked outside the home ever, or in many years are in an even worse situation. Just checking if anybody actually reads this shit which I copied from two comments on the site. They may have a good job, but zero credit history. Their score is not necessarily an accurate reflection of their default risk. These situations perhaps are where it is a good thing if a loan officer has some flexibility. Its not a black and white issue. FICO scores are good and bad.
However all of this misses the point of my original post. I think the evidence has shown - and I'm talking about the national state of affairs, not solely my personal anecdote - that in the eyes of today's lenders, bad credit and a higher likely hood to pay higher rates and rack up penalties and late fees are actually desirable qualities from a profit standpoint. Higher risk customers represent higher profits. It doesn't matter if this creates systemic risk because: A. lenders are working to make default harder or impossible, and B. because the government has shown a willingness to turn a blind eye and bail these industries out when the systemic risk turns to systemic collapse. I submit that the technology discussed in the article will not simply be used to provide an under-served population an alternative metric for determining credit worthiness. Lets get real. This technology will be used the same way all aggregated personal data is used. That is, it will be used to target customers in any way that maximizes profit for those industries, with little regard for the negative externalities it creates.
