The mirage of financial health in America

The mirage of financial health in America

Highlights of the Story A FICO Score Does Not Give the Full Picture of an Individual’s Finances Many Americans have felt financial embarrassment during the pandemic Financial health and financial well-being are not interchangeable measures.

People tend to have a strong emotional reaction when asked about their FICO score – the question usually elicits feelings of shame or pride. After all, these three numbers can influence a person’s access to credit, car loans, home loans, rental approval, or even employment.

So how did this score become such a powerful channel to financial resources?

A FICO score is a three-digit number based on information in an individual’s credit reports. It was introduced in 1989 to help lenders quickly determine the likelihood of someone repaying a loan – that is, a quick way to assess the risk and financial health of a potential borrower. This score, in turn, affects how much, over how long, and at what interest rate a person can borrow money.

The problem with a FICO score, however, is that it is a metric with no place for context. It offers lenders a limited, one-dimensional view of the customer. Its prevalence as a means of assessing risk tolerance is understandable – it is easily scalable because everyone has a FICO score. But just…

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