Several years ago, a conversation about credit ratings prompted a friendly argument with an acquaintance. My friend, an idealist who hated seeing how the rich and powerful took advantage of those with lower incomes, argued that credit was a force for exploitation.

While I’ve certainly seen exploitative lending practices–I’ve been a financial writer for 15 years, after all–it’s equally clear that credit is necessary for ordinary people to get ahead. Without access to credit, things like home ownership would never be possible for anyone who wasn’t already rich.

Of course, my friend’s point also stands. Lending can often be exploitative, leading to cycles of debt and entrenched poverty. But we live in a world where having a credit score is just about mandatory. Since we can’t opt out of this wildly imperfect system, the best thing we can do is understand its pitfalls and potential benefits–and minimize the harm it does.

Credit reporting got its start in the 19th century when retailers would share financial information with each other about their customers. If you’ve ever seen small retailers post photos of customers who are not allowed to pay by check, you can understand how this kind of sharing of information could be a helpful tool for protecting a narrow profit margin.

Unfortunately, early credit reporting also had quite a bit of prejudice built in. By the 1960s, credit reporting agencies not only reported financial information, but also any “lifestyles” or conduct that could be gleaned from newspapers or other public sources. This meant individuals were being denied financial opportunities based on their sexual orientation, alcohol use, or any other behaviors that may have put them in the public eye.

What was even more infuriating was that these credit reporting agencies were not required to disclose the confidential information they had gathered about each individual. So if you were denied a mortgage or a job because of what was in your credit files, you had no right to see what was blocking you from the opportunity.

To rectify the opacity of early 20th century credit........

© Fast Company