The credit rating system is not new. For years we have been told to look at how we spend, to spend only what we have and to monitor the use of our credit card. We know that debt, whether it be school loans, car loans or medical debt, can be used against us.
With the current credit rating system, this can mean problems when we want to borrow money or rent an apartment. So what would happen if that system experienced an upheaval? What happens if blockchain can make it possible?
What is Blockchain?
If you do not know the blockchain, it is the creation of Satoshi Nakamoto who is believed to be a pseudonym for a group of people, who are working together under one name.
Blockchain allows you to easily distribute digital information without making it available to be hacked or copied. Like a digital ledger, you can add new information, but because of how it is stored, old data can not be easily edited or deleted.
Blockchain technology has begun with the creation of Bitcoin, a digital currency. Since then, it has evolved into something much more significant. Blockchain has essentially created a new basis for a better internet infrastructure.
C & # 39; is the possibility that it will continue to evolve until our current credit rating system is obsolete? It's a possibility.
You do not necessarily have to know Such as Blockchain works to take advantage of it. If you are curious, however, here are the basics.
How does Blockchain work?
If you're familiar with the computers and data they host, you know that there's usually a centralized location that stores information. This information is susceptible to hacking and what is stored can quickly become corrupt.
Blockchain changes the way this data infrastructure works. Rather than a central location where data is stored, data is duplicated and stored in multiple locations. Updated regularly, information is no longer available for hackers to invade or corrupt.
Blockchain creates a truly shared platform. The information is accessible to anyone at any time on the Internet.
As an outdated approach to editing documents in a group, our original understanding of the Internet and documentation is limiting. Think of Google documents as an example. As people start gravitating towards shared platforms, we become more efficient with our time and storage space.
Likewise, our understanding of the best way to use and store data on the Internet is also evolving.
Blockchain allows more sophisticated maintenance of information and records. You can not go wrong if you have the latest version or if some information has been misplaced.
What are the advantages of Blockchain?
While there are many advantages to using a blockchain style system, there are two very important things that are worth mentioning.
The first advantage is that there is no single place where information is stored. This also means that it does not have a single point of failure.
Something should happen to the millions of computers that have access to information to be lost. It is highly unlikely that it will ever happen.
The second is that no single entity or the person has control over the input or maintenance of the information. The information contained in the blockchain parameters can not be easily altered or corrupted.
This is, in essence, a public platform, where information can be shared and accessible.
What does all this mean for our current credit rating system?
We do not need to be too busy with the details of the blockchain system. For now, let's take a look at how this technology can change the way we approach credit scores.
Consider that the current (obsolete) centralized system in this instance is the bank. The bank has all your information. If you want to access one of these, you must go through your bank to recover it.
This is the case if you need information for a mortgage, a new car or educational loans.
Once this information is obtained, proceed and pass it to the part in question. This type of system means that sensitive data passes through different hands. In this situation, there are more moments of vulnerability for information that maintains your identity and credit score-protected.
Another problem with this current method is that changes to the credit history are often slow to appear. A slowing down is needed to reflect any positive changes you are making.
Positive changes may take place which should be reflected in the credit score. But this is not always quickly captured in the information that can be pulled from the bank.
These systems are maintained and transmitted by humans. You have to worry about the security of the individual computer networks in which your information travels. You must also be worried about the possibility of human error.
A blockchain system completely changes the way this information is communicated. Data breaches (such as the Equifax hack) may be a thing of the past if we move to Blockchain.
Good credit is one of our most precious assets. We often need to demonstrate our credit history by providing sensitive information. Social security numbers, driving license numbers, passport numbers and other identifiers are passed back and forth during credit requests.
It is worth repeating that, during the trial, we are vulnerable to stealing information. A traditional system only needs to have that central computer hacked to gain access to or control of information.
Alternatively, a blockchain system requires that a hacker gains control of over 50 percent of the network to succeed. It is unlikely to happen, and certainly not without someone noticing it.
The use of blockchain means that credit checks do not expose or endanger sensitive data. You will have faster and more current results in a request. And at the same time, it will not put your identity at risk of theft.
With the blockchain, we can also easily pass information back and forth outside the existing facilities in the United States. In the past, credit stories were not easy to take with you abroad. Moving to a new country could mean you need to start all over again, as far as credit creation is concerned.
Blockchain technology allows a global credit platform. You will no longer be confined to a single country and you can take your credit history with you wherever you go. In today's "global village" of a world, this kind of flexibility is extremely useful.
Who benefits from Blockchain?
The changes that the blockchain brings with it can have an impact on everyone. However, some pockets of the population will reap more significant benefits from the transition. Those groups of people are minorities, young people and those who are under-the-counter.
In a rapidly changing economic environment, these groups need more help than ever before. In the last decades, the whole scenario of our financial system has experienced an upheaval.
The cost of real estate and education is growing much faster than payment rates. Young adults find themselves with more financial debt and worry. They also noted that they do not have control of their credit history.
Big credit bureaus, like Equifax, do not see the average person as their client. Instead, the company sees that person's information as something to be shared with other banks and lenders. Far from a client, the person in question becomes a commodity to be used as the company deems appropriate.
Moving towards a blockchain system for credit scores will allow people to regain some control. Not only can they see and keep their credit information, but they can also spread it as they see fit.
In the post-Equifax environment, two things have become increasingly apparent. The first is that most of our credit information should not be stored in credit systems. The second is that social security numbers should not be used as a primary identification tool.
Prior to Equifax's equation, there was a limited interest in moving towards a blockchain credit storage system. There was a strong inclination not to change something that had worked so long.
The Equifax violation has brought home the fact that this system does not work quite well as it was thought to have been. However, there are still some things that need to be addressed in the blockchain system: speed and expenses are both problems. Even so, a future involving blockchain looks mighty bright.
The future of the credit scoring system
It is not likely that the traditional credit rating system is fading away at night. Probably the big names in the industry will be around for a while to come.
There's still a lot of work to do with the blockchain platform before you can access all the benefits that come with it.
It is promising that this push towards a blockchain credit score system may allow for minor identity theft. Individuals will have more control over their information and who can access it.
With some adjustments and improvements, a blockchain system could revitalize our understanding of the credit score and share it entirely.
Keep an eye on the blockchain system and how it continues to evolve. You may be pleasantly surprised by the review that our credit rating system could occur soon.
Guest Post by John Blakely
John Blakely has had a passion for everything related to personal finance for over a decade. He firmly believes in having big financial dreams and executing a plan to make them happen. He is an ambassador for training for ScoreSense, where you can find more of his writings.