The wheat and the tares: credit scores and the computerized filtering of the Canadian consumer

Author

Jacques Saint Amant, Marie Vallée

Organization

Option consommateurs

Published

2004

Summary

Who uses credit scores, and why? Can they be trusted? What impact do they have on commercial practices, on consumers’ interests, on the markets in which they have become such an important decision-making tool? Do steps need to be taken to better inform the public? Do we need to limit their use? Although we briefly outline a number of responses in this report, we do not claim to exhaust a subject whose technical complexity is rivalled only by its socio-economic importance. Let us begin by summarizing the principal analytical avenues that will be explored. We will briefly present the context, providing a brief history of the credit evaluation industry. Then the problems will be identified and four (4) aspects emphasized. More specifically, this involves evaluating the effectiveness and efficiency of management risk tools, primarily in the financial sector. First, the effectiveness and efficiency of these tools initially depend on the quality of the input: does the data used to establish credit scores seem generally reliable? What about the accuracy of the information used in calculating a credit score and its suitability to this purpose? Second, a credit score can only be considered a useful instrument if it is developed in accordance with an appropriate logic: are the correlations one is seeking to establish and the algorithms that are employed likely to produce convincing results? Third, we need to take stock of some of the practical considerations raised by the use of credit scores by various types of companies. Finally, there are questions related to information. Do consumers know what it is all about? Do they agree voluntarily, in full knowledge of all it entails, with the use of credit scores? How can they adapt their behaviour, if need be, to derive maximum benefit from the use of credit scores?

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OCA Funded Research
This research received funding support through the Office of Consumer Affairs' Contributions Program.

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Source: Consumer Policy Research Database