Predicting the future is a very chancy thing to try and do. Although George Orwell got quite a bit right with his novel 1984.
I mean who would have or did predict a pandemic just a few short years ago??
Someone may have, but they kept it quiet. Not even the governments were ready, and they are supposed to plan for every contingency.
And yet, here we are hopefully nearing the end of one.
In making the bold statement and prediction of seeing the future of credit reports, this “prediction”, is based on some solid facts, and the fact that credit reports are changing and will change more.
Credit Reports 101
The history of credit reports is a long one, and unless you are into history, and credit reporting, it may be a dull one.
Suffice to say, credit reporting is important, very important as we will see.
If we look back many moons ago, if you wanted a loan you went to your local bank, spoke to the Bank Manager, filled out a loan application, and waited. You waited until the Loan Committee next met, decided the outcome of your loan application, and if you were approved or denied the loan.
In looking to speed up the process, credit bureaus were created. These were repositories for information on various lines of credit or loans you may have. Any creditor you had was encouraged to report to these credit bureaus, how you paid your loan or line of credit.
The idea was it made a one-stop place for banks and lenders to get information on how you pay your accounts, so it made lending money safer, and also quicker.
These credit files had details on you, name, address, etc, who you owed money to, the bank or lender’s name, and what type of account it is, and also how you paid the account.
So now instead of waiting days or weeks to get approved for a loan, a lender could “pull” a copy of your credit history, review it, and make a lending decision quickly, and also with more confidence.
However, this process still was not fast enough, oh no, we need immediate answers.
So credit scoring became the new kid on the lending block.
Credit scoring is a numerical number assigned to your credit report which is used to predict the outcome of you repaying a loan. The scores can vary in value from the low hundreds to 999, the higher the credit score, the better.
While most credit scores are made up of five (5) main factors, as we will see, some lender use other factors as well.
The five main factors used in credit scoring, and the percentage of weight they carry in making up your credit score are the following:
- Payment history: 35%
- Balances or how much you owe: 30%
- How long you have had credit: 15%
- Types of credit you have: 10%
- Applying for new credit, inquiries or footprints: 10%
Credit scoring made granting or denying a loan an instant decision based on that lender’s set of rules and scoring guidelines.
Credit scoring made lending instantaneous, and also automated. If your credit score fell within a lenders guidelines, your loan could be granted automatically by a computer.
In looking at credit score and the future, we would be remiss if we did not look back at one important incident in the history of credit and lending money.
The Fresno Drop
The Fresno Drop was a big part in how we live with credit today, and changed the credit landscape back over 60 years ago.
In brief, back in the 40’s and 50’s, people did not use credit cards much. We may have had accounts at our local shops and stores which extended credit to us, but sing credit cards, which had been around for many years, just was not a part of our daily purchasing lives.
There also was no Internet, so no online purchases requiring a credit or debit card,
In 1958, Bank of America wanted to increase their presence in the credit card world, so they took a bold step forward and posted out 60,000 pieces of post in the city of Fresno, California, and in each of those posts was a credit card, with a $500 credit limit.
A $500 credit limit was a good credit limit in 1958.
Now the Bank of America knew it was a calculated risk that some people may use the cards and never repay the balance, but it was a risk they were willing to take, and it paid off.
It raised the awareness of using credit cards, and Bank of America did it all without pulling credit files for 60,000 people.
Big Data….I Mean Huge Data!
As you can see in what makes up your credit score and credit report, it is all data, information on you.
But we are changing, the Internet, Social Media, the sharing of information is more immediate now, in part due to our mini-handheld computers called mobile phones.
In addition, we are becoming a cashless society, more so now due to the Covid virus and not wanting to exchange money.
All this adds up to more information on us, more data, data that can be used to predict and know more about us.
Think about it….
You post on Social Media, and have friends, and all this is documented, and traceable.
We pay by debit or credit card, again all visible. Take a taxi we booked using a mobile app, we can be found.
Do our food shopping online, or using a supermarket points card, and paying by card, someone now knows our dietary habits. Which could aid someone in making assumptions about our health, due to what we eat and drink.
By 5 bottles of wine a week, someone has this information.
When you are online and see all the “cookie” notices, these are ways to track us when we are online. Specific ads pop-up to sell us stuff, or particular news articles seem to come our way, all based on what we have viewed, read, or web sites we have visited in the past.
Big date and data mining is huge.
Look at how some believe we are even influenced in how we vote.
With all this new data and information about us available, why not put it to use in scoring not just our credit, but our lives, Social Credit Reports.
Social Credit Reports Are Already in Use
Now, armed with all this information and data about us, manufacturers know what to make for us, what we will buy, how to sell to us, as they know what we are looking for, what we like, dislike, and if we use online dating services, people can find out our tastes in love and dating.
Through our Social Media anyone can find out our friends, family, who we like and dislike, and see photos of us.
Oh, and they will know where we are at all times as we can be tracked by using our debit or credit cards for travel, and our mobile phones are always on.
Do we need to even mention the massive CCTV coverage everywhere you go.
Sound a bit “Big Brotherish”?
That’s because it is, and it is here today, a bit past 1984, but Orwell was a head of his time.
While for now there may be lenders using parts of this Social Reporting system in reviewing loan applications, such as looking at your Social Media and who your friends are, employers are moving towards this system as well.
Some employers have policies about what you can and cannot post on your Social Media accounts, and as a part of the hiring process, some employers do a credit check and also review your Social Media accounts.
In China they have raised the bar on Social Reporting, and raised it in only a way a Communist Country can.
They are using this form of reporting as a way to define what class a person may be in.
Good Social Credit Reports can help someone there not just receive a low interest rate on a low, but also not need a deposit to let a home, have priority health care and travel.
Those with low scores could be banned from travel, and see their children not be accepted into the better schools.
If someone stays home, plays video games, and eats junk food, would have a lower Social Score, than someone who goes to work each day and has a good diet.
Someone who buys diapers could be viewed as a parent, who may have a better sense of responsibility.
With all this data and information, a lot can be read into and from it.
It could also be used for the Dark Side of things.
For now much of this data and information here in the UK, is slowly being introduced and making its way into our lives, however, it will become used more and more. How can it not?
Information which is now coupled with the technology to gather, harness, and use it, is very powerful and very valuable. Your details are sold all the time. There are even new start-up companies that are gathering our details and data, and when it is sold, giving a percentage back to us, as it is our data!
And we used to think the Internet was a “whole new realm of mischief”, then along came Social Media and look how that has become the new “King of mischief”. Social Credit Reports will soon be Lord over them all!
A bold prediction.