Credit scoring: What is it good for?

A recent German investigation into credit scoring systems has revealed that the cost of credit has little to do with objective assessments of customer risks and calls for greater transparency to be provided.

The research report, which is currently only available in German is available from the European Coalition for Responsible Credit website: www.responsible-credit.net

Debt on our Doorstep's proposals for action, issued in late 2007, already includes the following call:

"Credit pricing must be made more transparent. In particular, the industry should publish details of the factors taken into account when determining the interest rate offered to borrowers following a loan application, and the relative weighting that they have applied to these. Where the rate offered to a borrower is higher than the advertised rate, lenders should be under an obligation to state clearly why the applicant’s credit score was not adequate to support the offer of the lower rate."

The German report appears to provide further support for this proposal.