Credit scoring: breaking the exclusion cycle

The current credit scoring model is flawed.

Credit scoring is a gatekeeper to wealth, career opportunities and housing in the US (and further afield), but it is a mechanism that also internalizes other obstacles ranging from inherent racial bias to incorrect data.

The basic principle behind credit scoring is that by having a track history as a reliable user of financial services you get access to certain services or pay less for others. However, one person’s access card is another’s barrier to entry, especially for underserved segments including minorities and migrants.

A long history of discrimination affects the data that credit scoring models use today, due to factors like inherited wealth and home ownership. Overall, Black and Latinx consumers in the US have much lower credit scores than white people. Additionally, there are 26 million Americans who are “credit invisible”.

A group of startups is addressing these systemic issues by either helping people build their credit history in innovative ways, from rental payments to savings, or offering services without the need for credit scoring.

Screenshot of landscape of credit scoring startups on Dealroom.View landscape

Discover 50+ startups fostering financial inclusion by going beyond or improving credit scoring on Dealroom.


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