Why Controlling Your Credit History Is Possible Through Blockchain Technology
The Equifax hack in 2017 was a wakeup call for millions of Americans. Most people knew that credit reporting agencies had their personal information, but the realization it could be stolen in an instant sent shockwaves through the country.
Many people were justifiably angry.
They asked questions such as, “Why do these companies control this information? Why don’t I have a say in how and when it’s used? How can it be stolen so easily?”
The truth is, people don’t have insight into the process behind credit scores, credit checks and the sharing — or loss — of their most private information.
That’s a problem because your credit report is of vital significance when it comes to buying a car, taking out a mortgage or even getting a job.
But the tide has slowly been turning against the credit bureaus and other corporate use of consumers’ private information. It’s coincided with the emergence of technologies like the blockchain — a tool that has the potential to give people more power over their credit and data sharing.
Here’s why it can benefit the industry:
Consumers have little visibility or understanding into what’s happening with their credit data.
Back in 2013, 60 Minutes investigated the credit score industry — and what they found wasn’t pretty.
As many as one out of five Americans had a mistake on their credit report. And one in 10 had a mistake that could be detrimental to their score.
Credit scores have a real impact on people’s lives and their ability to make good financial decisions. Right now, if your identity is stolen and your credit is ruined, the process for fixing it is incredibly arduous — with no guarantees.
The 60 Minutes expose found many people who’d been trying, to little or no avail, for over half a decade to have their scores fixed. And many of those people hadn’t been victims of identity theft. They’d simply been mistaken for another person with a similar name and poor credit.
The issue isn’t just that consumers have little insight into what’s happening with their credit. They also can’t do much to protect themselves from mistakes or fraud.
At the moment, it’s possible to go online and see snapshots of your data provided by a credit monitoring website. But that isn’t the same as having direct access to, and protection over, your credit data.
Consumer interface technology operating on the blockchain will give people power over their credit score.
The data credit bureaus collect on people is extremely valuable, yet it’s inaccessible to the average citizen.
If you’ve ever taken out a mortgage, then you’ve had an opportunity to peek behind the curtain and get a glimpse of how the system works. Initially, you have to provide pages of documentation, such as bank statements or tax records, that the lender has to process. Then, you usually have to pay a fee to have your credit checked.
What many people don’t realize is the lender and the consumer get different credit reports from the credit rating agencies. The lender gets to see additional information the consumer doesn’t, which creates an imbalance of power. The lender may also share data with secondary market lenders, essentially creating a marketplace the consumer doesn’t know about.
At every step, consumers are disadvantaged by the distance between them and their actual credit report.
That’s why a decentralized blockchain system is the best way to put power back into consumers’ hands by eliminating many of the barriers to accessing and controlling credit reports.
With credit reports accessible via blockchain, consumers would no longer have to rely on an outside agency to provide them with a snapshot of their current credit. Instead, they would have complete control of their data to show the bank themselves. And they’d have the ability to provide their full credit history, not just the generalized report currently available to most people.
Credit history itself would be safer on a blockchain, due to the decentralized and immutable nature of the technology. There would be no massive, centralized database constantly tempting digital criminals.
Putting the power back into the hands of consumers is a laudable goal. But there’s also plenty of opportunities to use blockchain to empower people who might not be able to get a loan in the first place.
The blockchain has the potential to change the credit industry for those who need it most.
Around the world today, roughly two billion people are “unbanked.” That is, they don’t have a bank account or access to a financial institution.
And the people who are located further from traditional lenders — either physically or socially — have a much harder time getting loans with reasonable interest rates. Most legacy lenders, like traditional banks, simply don’t want to take on the risk. The lenders that will accept the risk often charge predatory rates in exchange.
At one time, microlending was believed to be the solution for this problem. But it has yet to reach its potential.
Some blockchain companies — such as the Swapy Network — are already working on this issue, trying to help people obtain universal access to credit. Others like BanQu and Blockchain For Change focus on providing portable digital identities to low-income families, the homeless and other demographics who historically have difficulty accessing and building credit will be the main beneficiaries.
Other platforms, like Moeda, are betting that by using blockchain, they can cut out middlemen, increase operational efficiency, and work with cooperatives and banks to provide micro-loans and other credit services to underserved populations.
The ultimate goal for many of these companies is to create new networks where borrowers can build economic histories on top of their digital identities, without reliance on traditional banks and lenders.
And that’s when the blockchain is at its most revolutionary — when it’s empowering people and helping improve lives and futures around the world.
Thanks for reading!