Threat of ‘postcode discrimination’ as credit scores skewed by where you live

Where you live could determine if you can get a mortgage, with Australia’s biggest credit scoring company now applying postcode data when assessing applications.

Equifax holds information on almost 20 million Australians and the ‘credit scores’ it produces are used by banks in determining whether they will extend a home loan.

The confirmation of Equifax’s use of postcode data is another barrier to social mobility – people improving their lives – because it makes it harder for people in poor areas to access credit.

“It’s a bit like the rich get richer and the poor get poorer,” said Victoria Coster, founder of Credit Fix Solutions, a company that helps people get finance.

Victoria Coster, founder of Credit Fix Solutions, warns that residents of lower income postcodes may find it harder and more expensive to get loans.(ABC News: John Gunn)

Now, or never

One of the elements now used in assessing if people are a good credit risk is how their neighbours behave when they have been lent money.

“Where you live now shouldn’t affect where you can buy a home in the future,” said Amy Pereira from consumer advocacy organisation CHOICE.

Amy Pereira
Amy Pereira is concerned people don’t understand the impact that ADM or automated decision-making plays in their lives.(ABC News: Daniel Irvine)

She is concerned the use of postcode data to determine if people should get credit could lead to discrimination.

“We’re concerned that using postcode data to determine your creditworthiness really presents an invisible barrier.”

Equifax has only recently begun using “geodemographic data”, such as how people behave with credit in a particular area, in assessing credit scores for individuals.

In a statement, the company said the information is used “to form a small component of Equifax credit scores in limited circumstances, as it has been found based on statistical analysis to be a relevant factor in determining credit risk”.

Big data weighs decisions

It is part of a wider issue: the explosive growth in the use of automated decision-making, or ADM, where algorithms and artificial intelligence (AI) programs are used to make decisions instead of humans.

Tensions in that area occupy the mind of Lyria Bennett Moses, director of the UNSW Allens Hub for Technology, Law and Innovation.

Lyria Moses
Lyria Bennett Moses says there need to be definitions about what fairness is in AI systems before they are deployed.

This is not a theoretical discussion.

By using loyalty cards, online shopping and credit, consumers create reams of linked data about their spending and lifestyle.

That information is now going into credit decisions.

A credit score of over 700 is generally considered good, but mortgage brokers have told the ABC that algorithmic assessment of customers means a single transaction using a buy now, pay later (BNPL) service like AfterPay or Zip can see 50 to 100 points lopped off instantly.

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