Credit scores are integral to the way Americans borrow money, but the process by which they’re calculated is less than perfect. John Oliver, host of HBO’s Last Week Tonight, dived into the topic on last night’s (April 10) show.
Credit scores can have an outsize influence on people’s lives, Oliver explained, and a lot can ride on their accuracy. “It’s not just banks deciding whether to lend you money. It’s also landlords deciding whether to rent you an apartment; insurers setting your rates; and even employers using it to decide whether or not to hire you,” Oliver said.
But credit scoring methods can be inadequate—scores are calculated using longstanding metrics that may not account for current economic realities, like recent college grads with high paying jobs but also a ton of student loans. And there are plenty of other issues. Oliver used an example of a woman who apparently started accruing someone else’s debt because a credit agency switched their names. Even after a six year dispute, the debt still wasn’t written off.
In 2013, the Federal Trade Commission said that one in four consumers reported errors on their credit reports that might affect their credit score. In his segment, Oliver also criticized a Consumer Data Industry Association (CDIA) report that celebrated the fact that 95% of credit reports in the US were unaffected by inaccurate credit scores—Oliver noted that the remaining 5% of the US population is about 10 million people.
Quartz has reached out to the CDIA for comment.
The show asserts that credit reporting agencies like Equifax, Transunion, and Experian want employers to start using credit reports in hiring decisions, as a measure to determine trustworthiness.
While credit scores are important, their outdated methods have given rise to an entire industry focused on making lending decisions without them. Instead of using traditional scoring metrics to determine your creditworthiness, some startups are instead looking at consumers’ profiles on social-media sites such as LinkedIn, and other factors, including education and job history, or monthly expenses.