Consumer Credit And Blockchain

A Path to Better Credit Information Control?

Consumer Credit And Blockchain
December 31, 2018

While you have plenty of tools to protect your personal information, your data is arguably in as much danger as it's ever been. It's not that you don't take precautions (although many Americans don't), it's that your personal information is stored in so many places – some of which you can't control.

"The challenge with identity theft in today's day and age is we are an online culture," says Adam Carroll, Founder and Chief Education Officer of National Financial Educators. "I think most Americans would be astonished to know how many places actually have their credit account and checking account numbers."

Consider the Equifax data breach. Almost 148 million people were affected by a breach of their personal information at a company that many had no direct contact with – yet, without a credit file at Equifax and other credit reporting agencies, those people could not get credit at all.

The credit system lacks transparency from a consumer point of view. Many Americans know that their credit history is compiled by credit reporting agencies, which in turn send information to lenders seeking risk assessment – but not many Americans know that lenders see a different version of their credit histories than the snapshots they receive. Different credit scoring systems distill the same set of information into ratings specifically for risk factors in different industries.

Lenders get a comprehensive view of your credit history that may contain costly errors. According to a 2013 investigation by 60 Minutes, almost 20% of Americans had some form of error on their credit report, resulting in a lower credit score in 10% of those cases.

As a consumer, you only receive credit reports on request, or you pay for regular access or monitoring of that report. Lenders have the upper hand over consumers when it comes to credit information and transparency.

A recent Forbes article suggests that blockchain technology – the basic principle behind Bitcoin and other cryptocurrencies – may be used to give consumers greater control of their own credit profile. Blockchains have no central authority, instead recording secure transactions throughout a large network.

Theoretically, a blockchain-style technology could allow you to securely compile all the elements of your credit history and submit them to potential creditors yourself. Identity theft would be reduced because there is no centralized database to hack – thieves would either have to hack one account at a time or invent a new way to circumvent the blockchain.

A blockchain concept may work well outside the traditional banking system, to help the approximately two billion people around the world who are "unbanked" – lacking a traditional bank account or access to one. Blockchain enterprises like Blockchain for Social Impact and BanQu are already working on ways to provide this underserved group with access to credit.

Moeda takes a similar blockchain-based approach toward entrepreneurs who are underserved by traditional financial outlets. They hope to apply blockchain technology to streamline the financing process and eliminate hurdles that stifle smaller and/or riskier enterprises from accessing necessary funds.

Blockchain technology may be the key to giving consumers power over their credit history in the future – but the key word is "future".

For now, your best methods of controlling and protecting your credit history are old-school common sense. Use anti-virus software and strong passwords to protect your data at home, use only secure and encrypted transfer methods, limit the exposure of your personal data – and keep a close eye on your credit accounts and credit report to minimize the damage if a hacker does steal your information.

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