Evaluating Credit Applications, Equality and Inequality in Consumer Credit

This paper aims to show that as the form of consumer credit becomes more and more money-like the inequality in getting credit becomes a more and more significant issue, just as the income inequality. Based on the relevant literature on banks' practice in evaluating credit applications we present to ideal types which are related to either uncertainty or risk faced by banks during decision making. In situations of uncertainty banks have to rely on judgmental (subjective) decision making which can result in severe discrimination. When facing risk, credit scoring systems are developed, which grant or deny the loan based on the statistical analysis of the past behavior of individuals similar to the credit applicant. This method eliminates the subjectivity of the bank clerk, but it introduces statistical discrimination which can never be entirely eliminated. To reduce this kind of discrimination in Hungary the positive (full) data credit bureau - besides the existing negative list - has to be introduced.