Are the factors of Credit bureau scores soon public?
Credit bureau considers its credit rating algorithm as a business secret. This annoys data and consumer advocates as well as many borrowers. However, the BGH gave the Credit bureau right. Now the tide could turn: an initiative calls consumers to donate data. Using data from tens of thousands of consumers, the Credit bureau algorithm could be uncovered.
The two non-governmental organizations AlgorithmWatch and Open Knowledge Foundation want to crack the Credit bureau algorithm. For this purpose, as many Credit bureau outlets as possible should be collected in the first step. In the second step, this information will then be evaluated by experts from the news magazine and the Bavarian Broadcasting Corporation.
By mid-March, about 30,000 USD will be collected. The goal is to develop open source software that will allow the initiative to scan, read, and transmit and store the Credit bureau communications.
The initiators do not say how many Credit bureau data sets relate to this project. In a second step, further money will be collected for the evaluation of the data. When this contribution was made, more than $ 29,000 had already been pledged.
Criticism of “small number with great effect”
The initiators complain:
The notorious Credit bureau score has far-reaching effects. If you have too few points, you are left empty (). But how does the score come about? And is he reliable at all? Or is the data outdated and the algorithm incorrect? We want to find out, because it can not be that a single number has such a big impact.
The goals of the initiative are also clearly stated. A “continuous social debate on the effects of such scoring procedures” is to be achieved. The aim is also to “ensure regular monitoring by means of exhaustive examinations by independent social institutions”.
The initiative demands: “Credit bureau and other credit bureaus must publicly and permanently demonstrate how their score works and what models they are based on.”
The cabaret artist Nico Semsrott explains in this video why the initiative OpenCredit bureau is necessary. And how you can support this initiative. (Copyright and originator: AlgorithmWatch)
What flows into the credit? The Credit bureau is silent!
Not much is known about the composition of the Credit bureau score. Certainly Credit bureau uses a peer group procedure. This means that the creditworthiness of a person also depends on how good the creditworthiness of other persons with similar characteristics is.
Wise z. If, for example, people with five credit cards have a statistically higher probability of payment default, the credit rating of a person with five credit cards tends to be worse regardless of whether invoices have been paid on time were or not.
Consumer advocates assume that an excessive number of credit cards will have a negative effect on Credit bureau scores as well as frequent moves. Also, the frequent completion of loans with small installments tends to be bad for your own creditworthiness. Again, there is the peer-to-peer principle: Who pays a toaster in installments, likely to be more likely in payment default than others.
Who pays a toaster in installments may have a worse credit rating
The Credit bureau keeps the composition of their scores secret, but makes the result available to everyone. By means of self-assessment, consumers can find out which scores have been determined for themselves. Decisive are the so-called Credit bureau industry scores, which are transmitted by the credit agency to contracting parties such as banks.
The contractors do not base their decisions on these values alone, but primarily on these values. A good Credit bureau score is not enough for a loan on its own because it also tests your income. A bad score is an exclusion reason. For cell phone contracts, a good score may already be enough for a positive contract decision.
By contrast, the Credit bureau base score, which is given as a percentage, is less significant. Average consumers land at 97-99 percent. The Credit bureau itself states that this value may differ from the more important industry scores.
Whether the initiative in the power of Credit bureau can change something? We will continue to monitor the development and report if necessary!