That doesn’t mean the formula is reasonable or transparent. An AI is also a specific formula that applies equally to everyone. It’s about how the formula takes “weight” on the individual’s differences.
> There are hard inquiries and soft inquiries
Why there are “hard inquiries”? Why someone else inquiring my credit score should affect my credit score?
Dinging your score over that only punishes you for soliciting credit offers from multiple lenders at once so you can choose the best terms. Which ought to be an antitrust violation.
And there are obviously better ways to prevent "double spend," like reporting the new loan being granted, which actually should reduce the credit score due to the new debt. It's not as if we can't make computers capable of updating this information in real time.
> The VantageScore credit score model takes rate shopping, e.g., for a mortgage or car loan, into consideration. All inquiries for mortgages, auto loans and major credit cards that appear in your credit file within a 14-day window are interpreted as a single inquiry.
I believe that's the case for the FICO score algorithm as well. I think a 14-day window is probably too short, but it likely does cover most situations.
You have to understand that there is a no "credit denied" feedback into the credit rating system. The standard pattern for an approved credit application is a hard-pull followed by the opening of a new tradeline, both of which affect your score. If you're applying for credit, but not being approved, then that just shows up as a hard-pull with no new line.
The FICO score is also set up specifically to ignore additional hard-pulls for the same type of credit within a bounded period; so if you go shopping for a mortgage (or an auto loan, or a student loan), then multiple queries within a 30 day period are coalesced, and only count once from a scoring perspective.
But more importantly the ding is maybe 10 points which is pretty much irrelevant to the “buckets” that define credit worthiness (>800, 700-800, etc).
Plus individual lenders can look at the report themselves and make their own determination.
AI’s are not “a specific formula” and not only that, it’s decision-making is opaque to humans.
You can learn literally everything you need to know about how the FICO credit scoring systems works in probably two or three hours of dedicated research, even though the model itself is a trade-secret. When lenders deny credit, they're legally obliged to provide the specific reasons why.
This is not-even-in-the-same-ballpark as AI, where no-one can even tell you how inputs relate to outputs, not even the creators.
https://www.ftc.gov/news-events/news/press-releases/2013/02/...
It's one of the few things thats so obvious its bipartisan. I'm amazed you think its worth defending. There should not be a punishment for LOOKING at a credit score hard or soft, that's insane.
To require someone take on debt in order to have good credit is pretty arbitrary. You can have all the money in the world, but no debt? you're fucked. The fact you can juice your credit with someone elses credit cards is also really arbitrary.
Banks lending you money don't care (at least not as a primary concern) how much money you have, their first concern is whether you have a history of paying back debt you owe. A credit score scores you on your ability and willingness to pay back your debts on time.
And yes, this means someone who takes on debt with a credit card only to immediately pay the balance before any interest accrues both has a stellar credit score and no debt in any practical sense.
This also means someone who is making their house or car payments properly also has a good credit score, outstanding debts negatively affecting the credit score slightly notwithstanding.
The credit score system is not arbitrary, it's a specific formula that applies equally to everyone.
>You get punished for just looking at it.
No you do not. There are hard inquiries and soft inquiries, and an individual viewing their own credit score is considered a soft inquiry which has absolutely no effect on your credit score.
As for Europe, there is no one homogeneous answer. Different parts of Europe handle credit differently. The UK and Germany are very similar to the U.S., whereas in France there is no concept of a credit rating or credit score.
With that said, generally the countries that do not have a credit scoring system are much harder to get a loan from.