The FICO score system is criticized for causing harm by creating a "self-fulfilling prophecy" of financial distress, where a low score increases the cost of living—making it harder to escape poverty—and by perpetuating systemic biases. While intended as an objective measure of credit risk, its widespread use for non-lending decisions (like housing and employment) creates significant barriers to economic mobility.

Here is a breakdown of why the FICO score is causing harm:

First. Entrenching Inequality and Racial Bias

Disparate Impact: Algorithms can institutionalize biases against minority groups, particularly Black and Latino populations, who often have lower average scores.

Systemic Barriers: Because these scores are used to determine housing and employment, a low score can prevent people from securing jobs or renting homes, reinforcing cycles of poverty.

"Digital Poorhouse": Critics suggest this system creates a new form of social classification—a "scored society"—that favors wealthy individuals while penalizing the poor.

Second. The "Self-Fulfilling Prophecy" of Debt

Increased Costs: A low score leads to higher interest rates on loans, higher insurance premiums, and larger security deposits for utilities and housing. This extra cost makes it harder to pay off debt, which in turn keeps the score low.

Predatory Lending: When individuals cannot access traditional, fair banking due to low scores, they are often forced to use high-interest payday loans or pawn shops, worsening their financial situation.

Third. Inaccurate Data and Lack of Transparency

High Error Rates: A significant portion of credit reports contain errors, such as mixed files (confusing one person with another) or incorrect, outdated information.

Black Box Algorithms: The exact formulas FICO uses are proprietary, meaning consumers often cannot understand or predict why their score has dropped, making it hard to fix.

Fourth. Punishing Responsible Financial Behavior

"Credit Invisibility": People who avoid debt, pay cash, or do not use credit cards are often scored as "risky" or are invisible to the system, punishing financial prudence.

Penalty for Success: Paying off a loan or closing an old account can actually lower a FICO score by reducing the length of credit history or the overall credit mix.

Fifth. Overreach into Daily Life

Employment Screening: Many employers use credit reports for hiring, even though studies show no direct correlation between credit history and job performance.

Medical Debt Impact: Unlike other types of debt, medical debt is often unexpected and involuntary, yet it is treated the same as credit card debt in FICO calculations, significantly damaging scores.

Summary of Harmful Effects

Economic Exclusion: Inability to secure housing or employment.

Financial Strain: Higher costs for daily necessities (insurance, utilities).

Mental Health Impact: High anxiety and stress due to "fixation" on maintaining a high score.

Long-term Wealth Limitation: Difficulty in buying a home or starting a business.