The way that financial institutions use a credit score may help democratize the availability of credit. Credit reporting companies derive a credit score from a host of factors. Besides helping them judge the risk of lending, it may in fact help people avoid previous forms of discrimination.
Five factors make up most credit scores. One's payment history makes up the largest portion of the score. One can get a higher credit score by paying bills on time and making deadlines. Following that in importance, the amount of credit one has used compared to its limits affects one's credit score. Of less importance, the length of one's history of credit can alter one's score. Finally, one's credit score might change if one use different types of credit or if one has tried to borrow more credit in a relatively short period of time. The credit agency would then compare these statistics to the statistics of a group of people with similar statistics and it would yield a credit score based on how likely one would be to repay debt.
One of the great effects of a credit score is that it's only one's financial history judged by others. A credit score can't judge by race, religion, sex, color or creed. In this way, the possibilities of receiving credit increase greatly to minorities historically excluded from financial life. It means very little if the desegregation law lets people move into a segregated neighborhood, but the bank refuses to give them a loan because of their race. The use of a credit score helps fight against discrimination itself. People will be judged by the content of their financial history instead of the color of their skin.
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