Over the last few years credit scores have become big business. Banks now have customers’ credit scores accessible on their banking apps, and they actively encourage customers to check their scores.

There has also been a proliferation of credit score products, such as ClearScore, Up by Experian and Splendi which uses information from credit bureau XDS.

Your credit score is used in so many areas of your financial life other than the obvious effect it has on your ability to borrow money. It can affect your insurance premium. Landlords use it when vetting tenants. For certain jobs, employers are allowed to check an applicant’s credit score. Soon, information about the payment of your rent, municipal account and levy account will also be included in your credit record.

Not everyone has the same conscience when it comes to keeping up with their debt obligations. While an affordability assessment tells a credit provider whether someone can afford a loan, a credit score tells a prospective lender about the attitude that a consumer has towards their debt repayments by looking at previous behaviour.

A credit score also allows consumers flexibility in switching between credit providers as it provides a track record which is measurable and available to any credit provider.

But is the credit score becoming too important? Is it encouraging the right behaviour, or is it being used to sell more credit to consumers?

Bank staff incentivised to sell credit cards

Recently my 20-year-old son went to collect his debit card from the bank. While he was there the bank consultant asked him if he had ever checked his credit score on his banking app. She showed him where to find it and commented that he should improve his score, because one day he might want to buy a house or car.

She first suggested that he set up an automatic monthly investment, which is great advice for a young person. Banks include banking behaviour, such as not defaulting on debit orders, as part of their own credit score measure.

But then she told him that he should take out a credit card in order to improve his credit score. That is not great advice, especially for a student who has no income. A bank consultant is incentivised to sign up customers for credit cards and she was using a credit score as a way to do that.

This is the messaging we receive every day: to improve your credit score you need to take out credit. It makes sense on one level: if you’re going to borrow money, a lender would want to see your propensity to repay debt.

But credit scores are also being used to promote and sell credit – and not only by the banks. Credit score products like ClearScore actively offer loans to people who sign up with them.

A study by credit bureau Transunion found that a person (credit seeker) who engages with their credit score is more likely to take up credit than someone who does not know their score.

One could read into this that a consumer who intends to borrow money first understands their credit score and ensures the information is up to date. This indicates positive behaviour. However, someone who registers for a credit score product is going to be actively marketed to for personal loans and may take up credit to improve their credit score.

On a more positive note, Transunion’s research also found that a consumer who actively engaged with their credit score was more likely to reduce over indebtedness. Credit score awareness can drive positive behaviour in people taking steps to remedy poor payment behaviour, but it can also be marketed as the reason to take on debt.

Credit scores, it is argued, is a way to bring greater financial inclusion. For individuals who do not have a financial track record, lenders provide small loans initially and judge their credit-worthiness based on their behaviour around paying back those smaller amounts.

This is why most consumers start their credit journey with store cards. Small amounts paid back over six or 12 months help to “build a credit score”.

The point that is repeatedly made by credit providers is that credit allows people to buy something with an affordable monthly installment when they may not have the resources to pay cash up front.

Easy credit encourages overspending

However, one could argue that the way credit is sold encourages people to spend more money than they would normally have done. I have seen many cases where people have been lured by the fake economics of credit to spend more than they would have on an expensive household item, like a fridge or piece of furniture.

In one example, a domestic worker bought a fridge for R15 000. She could very easily have bought a good-quality fridge for R5 000, but because she qualified for a larger loan, she blew R15 000 instead, paying it off over three years and spending double the actual cost.

She was lured by the fact that the really expensive fridge was “only” costing her R750 a month rather than the actual R27 000 after interest and fees.

If she had saved up R15 000, would she have used it to buy that specific fridge in the first place, or would she have opted to buy the R5 000 fridge and used the remaining R10 000 for other needs – maybe a child’s school fees?

To what extent does credit encourage people to spend money they wouldn’t have done by turning R15 000 into a R750 monthly expense (and then costing R27 000)?

Cellphone contracts are another classic example of encouraging consumers to spend way more than they would if they used cash. How many people would fork over R15 000 or R20 000 for a phone upfront? Yet the cost is hidden by a “more affordable” monthly installment.

Offering credit to a consumer is not a form of altruism. It is not a favour. It is not a gift. We need to remember that credit providers are in the business of selling credit, and retailers are in the business of selling the most expensive item they can.

This article first appeared in City Press.