Leave Me A-Loan

If you are a student, then you know that time after time you've given your money to pay back student loans. There aren't really many excuses you can make to not do that, unless you are a public servant in which case after a certain amount of time the loan will be forgiven (time in position ranges depending on what the position is). Unfortunately, if you still owe on your student loans, the plan to forgive $10K of what you owe has been cut from the U.S. budget, at least for now. It would have been interesting to see how canceling the debt would impact the credit score of students, especially since the average student debt has risen from about $36K to $39K per student from 2019 to 2020.

Speaking of credit scores, did you know that that is a more recent phenomenon? Although various methods of estimating credit worthiness existed before, modern credit scoring models date to 1956, when Bill Fair and Earl Isaac created their first credit scoring system. Then, the FICO score was first introduced in 1989 by FICO (Fair, Isaac, and Company). To be clear, prior to the introduction of a formal score, you could still get loans, credit cards, and insurance, but it was largely based on where you lived and recommendation letters. In fact, it wasn't uncommon to buy a house with a recommendation letter from your pastor or manager, for example. Things quickly changed; the FICO model is now used by banks and credit grantors. The FICO score is based on consumer credit files of the three national credit bureaus: Experian, Equifax, and TransUnion. FICO scores can vary depending on which bureau provides the information to FICO to generate the credit score. 

What are credit scores used for? Credit scores are often used in determining prices for insurance and loans. The national credit reporting agencies that generate credit scores also generate specialized insurance scores, which insurance companies then use to rate the risk of potential customers. That is not all: credit scores can also be used in the hiring process. Apparently, in 2009 TransUnion representatives testified before the Connecticut legislature about their practice of marketing credit score reports to employers for use in the hiring process. Legislators in at least twelve states introduced bills, and three states have passed laws, to limit the use of credit check during the hiring process, but that does not mean that it does not continue to happen now. The more you know!