Fico Scores, Transparency, and Teaching to the Test

I recently posted on LinkedIn my hot take on LinkedIn on former FDIC Chairwoman Sheila Bair's editorial, in which she endorsed lenders' use of Open Banking-sourced Cash Flow Underwriting data.  Like her, I'm an enthusiastic supporter of Cash Flow Underwriting, but the premise upon which she got to that endorsement- that Fico scores were hazardous to consumers' financial health- I think she gets wrong.  Her reasoning was that the scores rewarded financially irresponsible credit seeking, and that they "serve the interests of the lenders, not consumers."  I think that's a misguided premise, since the scores exist to provide lenders (not consumers) with an estimated probability of default for that prospective borrower at that point in time for that product.  The lender can then use that probability assessment on whether to extend credit to that consumer. 

In this thinking through this, there are a several compelling questions that I think are worthy of exploration:

• Does consumer visibility into their credit scores dilute their value to lenders as a decision-making tool?
• Is there a behavioral aspect to visibility into one's own credit score?  In other words, if I perceive my credit score as being a "good" score, does it change my behavior in terms of how I interact with credit products?
• Does improving one's score really mean that they pose a lower probability of default than they would had they not improved their score?
• Where's the line between knowing your credit and improving it based on score factors, versus knowing it and manipulating it through actions that dilute the relevance of the underlying info (e.g. authorized user trade line fraud, etc.)?  Is there even a difference?
• If credit scores exist to serve lenders, should consumers have their own score?
• What is a credit score really?  If a credit score has an ephemeral quality to it, does it actually exist?  (Zen question....)

Each of these questions in and of themselves is probably their own full dissertation, so I'm not going to attempt to take them on all at once.  I'm going to explore these over the coming days and weeks.  Stay tuned!