“If I don't have credit, I don't have anything”: Perspectives on the credit scoring system among mothers with low incomes

• Published date: 01 October 2023
• Author: J. Michael Collins,Sarah Halpern‐Meekin,Melody Harvey,Jill Hoiting
• Date: 01 October 2023
• DOI: http://doi.org/10.1111/joca.12561

RESEARCH ARTICLE

“If I don't have credit, I don't have anything”:

Perspectives on the credit scoring system

among mothers with low incomes

J. Michael Collins

1

|Sarah Halpern-Meekin

1

|

Melody Harvey

1

|Jill Hoiting

2

1

School of Human Ecology, University of

Wisconsin, Madison, Wisconsin, USA

2

Sandra Rosenbaum School of Social

Work, University of Wisconsin, Madison,

Wisconsin, USA

Correspondence

J. Michael Collins, La Follette School of

Public Affairs, University of Wisconsin,

Madison, USA.

Email: jmcollins@wisc.edu

Funding information

Administration for Children and

Families; Heising Simons Foundation;

Russell Sage Foundation

Abstract

This mixed-methods study examines consumer

perspectives on the credit scoring system drawn from

in-depth interviews with 72 mothers with low incomes

and national survey data from the National Financial

Capability Study. Interviewees express strong awareness

of credit scoring and a desire to have good credit.

National survey data corroborate these findings,

showing that most mothers with low incomes are

knowledgeable about their credit scores. They know

what behaviors improve credit standing and recognize

the tradeoffs between present consumption and longer

run goals. They do not reject the credit scoring system's

legitimacy and seek to work within this system to pursue

their financial goals, despite obstacles to success. This evi-

dence enriches our understanding of the perspectives and

values that motivate consumer financial behaviors and

highlights the systemic challenges to people's financial

well-being that are embedded in a seemingly widely

accepted credit scoring system.

KEYWORDS

credit access, financial inclusion, poverty, qualitative

interviews

Received: 1 May 2023Revised: 19 September 2023Accepted: 25 September 2023

DOI: 10.1111/joca.12561

This is an open access article under the terms of the Creative Commons Attribution-NonCommercial-NoDerivs License, which permits

use and distribution in any medium, provided the original work is properly cited, the use is non-commercial and no modifications or

adaptations are made.

© 2023 The Authors. Journal of Consumer Affairs published by Wiley Periodicals LLC on behalf of American Council on Consumer

Interests.

J Consum Aff. 2023;57:1605–1622. wileyonlinelibrary.com/journal/joca 1605

1|INTRODUCTION

Building and maintaining a strong credit record is often viewed as a step toward greater

financial well-being. Researchers and advocates have critiqued the credit reporting system in the

U.S. for further disadvantaging those who are financially marginalized (Ards & Myers, 2001;

Jennett et al., 2012; Kear, 2017; Kiviat, 2019c). However, it is unclear to what extent consumers

with low incomes—who are potentially most limited in their access to credit—share these cri-

tiques or view the system as working in their interest. The existing research on the consumers'

understanding of credit scores often focuses on how accurate people are in their knowledge of

their own credit scores and whether people's accuracy at knowing their credit profile is associated

with financial behaviors or outcomes (Courchane et al., 2008; Levinger et al., 2011; Perry, 2008;

Woodyard et al., 2017). While the accuracy of the people's self-reported credit status is an impor-

tant financial phenomenon to study, these studies do not reveal whether people accept or reject

the credit scoring system as offering workable opportunities for financial advancement. Dopeople

who are likely to experience financial marginalization view the credit scoring system as illegiti-

mate? Knowing the answer to the question of perceived legitimacy is key to comprehensively

evaluating the credit system (Ards & Myers, 2001; Jennett et al., 2012;Kear,2017; Kiviat, 2019c).

Indeed, Sherraden's Financial Capability Model (2013) emphasizes that feelings about financial

inclusion and confidence in financial services are as important as people's financial skills and

knowledge when modeling consumer behavior.

The process of collecting credit data, reporting, and credit scoring is complex, involving a

wide range of consumer payment transactions reported to multiple credit bureaus and used by

private firms to estimate each consumer's credit score. The numeric credit score is, in turn, used

to estimate future payment probabilities for each consumer in the system with a sufficient

credit record. Creditors, retailers, landlords, and employers

1

may then use these data to make

decisions before entering into agreements with individuals (Brevoort et al., 2016). Further, the

data can include errors that can negatively affect credit scores, but which take time and finan-

cial knowledge to detect and correct (Smith et al., 2018).

People of color and women disproportionately receive lower credit scores, driven in part by

systemic racism and sexism that leaves them with lower incomes and assets and more limited

choices of high-quality financial products (Li, 2018; Martinchek et al., 2022). Parents of younger

children also tend to have lower credit scores (Lembo Stolba, 2019). Because credit scores can

affect employment, place of residence, and opportunities for asset accumulation, they play a

central role in perpetuating existing inequalities in society (Foohey & Greene, 2022). The Finan-

cial Capability model of financial behavior posits that in addition to financial skills and knowl-

edge, people need access to affordable and safe financial services, including access to affordable

credit (Sherraden, 2013). Some advocates argue that the credit scoring system needs to be

reformed. For example, one proposal is to require credit bureaus to collect payment transactions

that are common among people with fewer economic resources—such as utility payments—to

better reflect their credit worthiness (Chenven & Ryan, 2014; Cochran et al., 2021; Turner &

Walker, 2019). Others, however, have argued that such fixes will do little to fully address the

system's inequities (Friedline, 2020; Kear, 2017). What is missing from this discussion, however,

are the perspectives of the consumers who are potentially most subject to financial exclusion

due to the strictures of the current credit scoring system.

This study draws from in-depth interviews with 72 women, all of whom were mothers with

lower incomes, and most of whom identified as Black or Hispanic. We learn about their per-

spectives on the credit scoring system, such as whether they see any possibility for themselves

1606 COLLINS ET AL.