Credit scoring and risk calculation, computing has made financing lazy

I became bankrupt, through little fault of my own, it was down to liquidity and cash flow. In a nutshell, a period with no clients and then a client who was a bad payer and that was it for me and the family.

Bow six years on, that bankruptcy is the bane of my life. I no longer have debt, admittedly the debt was written down, but mortgage holders insure for that and then they invented credit default swaps to cover themselves further.

So whats the problem, credit referencing, I have a bad score, I’m not annoyed about that I’m annoyed about agencies that just use the number. In our search to find somewhere new to live, letting agencies use a company called Homelet. Now I know a thing or two about how credit referencing computer systems work, I’ve written two credit referencing and risk software systems for Assurance and Insurance, they are rather simple calculators, sum a list of values from a number of credit agencies (there are around 40 in the UK, only a couple are available to the public), divide by the number of agencies used and multiply by by a weighting factor.

That’s very simplistic, financial modelers often want to create their own fancy algorithm (it seen as a differentiator and shows how clever they are). So a computer grinds the numbers and spits out a value and the admin person sitting at the screen goes yes or no.

I worked with a business analyst for a very very big Insurance corp on such a system and I suggested an override, he said no. This man who was analysing numbers crunching systems for financial services knew nothing about maths, the actuaries and underwriter were annoyed he didn’t know what a log was.

So this system ground numbers, the underwriters didn’t really like it because it went contrary to their years of experience of markets and clients, but it was forced on them. They felt they knew things better than a computer.

The downside now is that credit scoring is ubiquitous, why have letting agents now when you can deal directly with a system, the agents aren’t going to think about it further than the numbers on the screen. In some respects why do you now need letting agents a system like uber, could cut out a lot of the middleman between landlords and tenants,  a landlord needs insurance and maintenance. The insurance part is mostly automated now, so the final part which only really involves a human doing the maintenance work on the ground. That idea doesn’t help me a bankrupt who needs a house, but it shows that there is little need for the spread of letting agencies as other than showing the property about ten minutes work, or maintenance (doesn’t occur often) everything else can be automated.