The Equal Credit Opportunity Act forbids creditors from considering race, sex, marital status, national origin, and religion. Lenders and other institutions argue that credit-scoring systems provide a consistent, mathematical system to evaluate individuals. Institutions argue that a credit score is superior to the previous method of evaluation by a loan officer because the loan officer was given too much discretion, which gave rise to problems such as bias. Others argue that the disparate loan denial ratio has not changed since the implementation of the credit score, and the outright discrimination of the past was simply replaced with a more subtle form of discrimination that is built into the credit scoring calculations through the programmers’ judgment calls regarding which factors to consider, and the amount of weight assigned to these factors.

What Information Does Credit Scoring Models Use to Calculate a Score?

Credit scoring models compute your score primary from information contained in your credit report. The models might also take information from credit applications into consideration, including your occupation, length of employment, and whether you own a home.

According to Fair Isaac and Company, your payment history accounts for approximately 35 percent of your credit score. Your payment history reflects the various accounts that you have, including credit cards, mortgage loans, and retail accounts. Collections, foreclosures, lawsuits, and other collection items also fall into this factor.

The amount of money that you owe approximately accounts for 30 percent of your credit score. The manner in which a credit score reflects this amount, however, is complicated. As Fair Isaac explains, “Part of the science of scoring is determining how much is too much for a given credit profile.” The credit score takes into account your last reported balance, whether or not you pay the balance off in full. The score pays particular attention to the amount you owe in revolving credit” such as credit cards. For example, if you have several credit cards with a small balance that you pay off regularly, then this reflects better on your score than if you had the same number credit cards with no balance, because the latter shows a greater likelihood of “maxing out”those cards. In the same vein, if you have too many credit cards it will reflect poorly on your credit report.

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