Is it time to overhaul the credit reporting system?

“It would remake a sector of our economy and it would enhance opportunity, and economic stability for millions of people,” says Amy Traub, associate director of policy and research at Demos. “People are ready for a fairer system of credit reporting.”

“It would be set up to serve consumers and also to be giving lenders accurate information,” she says. “The credit reports, the credit scores and the algorithms that are used to determine whether you would get a loan or not, would be free to all of us.” [...]

Demos’s report details how historical and structural racism contributes to higher interest rates and insurance costs for Black and Latinx people, compared to white Americans.

The higher cost of borrowing, in turn, results in higher rates of debt collections in these communities, the report finds.

“As a result of generations of discrimination, black households and other households of color have access to dramatically fewer resources than their white counterparts to fall back on in a time of need,” of the report reads. “As a result, black families are more likely to face financial stress, resorting to unsustainable levels of debt or leaving certain bills unpaid.”

A public registry, Traub argues, could reduce racial biases by changing the way credit scores are calculated. The model would detail what data is included in an individual’s reporting history and could exclude items that disproportionally effect communities of colour, such as predatory loans.

Read more at Toronto City News