The credit score illusion is hurting American households

[UNITED STATES] Americans are drowning in credit card debt — $1.18 trillion as of Q1 2025 — yet many still cling to the idea that paying bills on time is enough to secure financial credibility. It’s not. As the average credit card debt per borrower hits $6,371 and buy now, pay later (BNPL) tools lure millions into untracked obligations, the core misunderstanding lies not in consumer behavior, but in how creditworthiness is engineered — and misunderstood. The real issue is structural: the credit scoring model isn’t designed for fairness, it’s designed for risk pricing. And the average borrower doesn’t stand a chance unless they start playing by the real rules of the system. This is a moment of strategic misalignment between financial literacy and financial reality.

The Context: Debt Rising, But So Is Confusion

The data is stark. Credit card debt is at near-record levels, with the Federal Reserve Bank of New York pegging it at $1.18 trillion. But it’s not just about debt; it’s about misinformation. FICO scores, which range from 300 to 850, are treated like a report card for adulthood. The average American clocks in at 715. Most borrowers assume that timely payments — even on non-credit items like utilities or rent — will improve their score. In truth, the system doesn’t work that way.

As Yanely Espinal of Next Gen Personal Finance explains, “A lot of these are not traditional payment types and are not reported to the credit bureaus — so there’s no impact.” This gap between what consumers think matters and what actually gets counted is a structural flaw that distorts behavior and undermines confidence.

BNPL adds another layer of opacity. While 62% of users believe their on-time BNPL payments help their credit, only some providers even report to bureaus — and when they do, it’s more likely to be negative delinquencies. That asymmetry is dangerous.

Strategic Comparison: Credit Scores Aren’t About You

The biggest myth is not just that on-time payments help your score — it’s that the system is designed for your benefit. It isn’t. The credit score is a business model, not a consumer tool. Built to optimize lender risk and profitability, it selectively filters information that maximizes predictive power for defaults — not fairness, completeness, or transparency for borrowers.

Compare this to other countries with centralized credit registries or public-sector scoring mechanisms. In Singapore, for instance, credit reports include alternative data such as telecom payments, offering a fuller picture. Meanwhile, in the US, a private triopoly of Equifax, TransUnion, and Experian defines what gets reported — and it’s largely credit cards, mortgages, and loans. Payments like rent, utilities, tuition, or mobile bills? Irrelevant unless specially reported, often at a cost.

This is where the disconnect lies. Financial wellness programs tell consumers to pay everything on time. But lenders and bureaus only reward selective payments — and punish others. The system is not “neutral”; it’s structurally biased toward borrowers who already have access to mainstream credit products and know how to use them.

Credit utilization is another blind spot. Most consumers have no idea that using over 30% of their available credit tanks their score — even if they pay on time. A 2024 LendingTree study shows that borrowers with scores above 720 keep utilization around 10%, while those below that threshold average 36.2%. This is where the biggest leverage lies — and the least public awareness.

Implication: Educated Consumers Are Still Strategically Exposed

There’s a strategic risk in designing financial literacy campaigns that don’t address the structural rules of the game. When even financially responsible consumers are penalized for misunderstanding how creditworthiness is scored, trust erodes — and the cycle of debt deepens.

For fintech founders and credit innovators, this is a moment of opportunity. Products that help consumers track utilization, report non-traditional payments, or gamify score optimization could create real value. But they need to go beyond budgeting apps — and address the information asymmetry built into the system.

For policymakers, the time is ripe to challenge the dominance of the private scoring model. Should rent, utilities, and BNPL payments be default-reported? Should consumers have more control over what gets included in their reports? Europe and Asia are already experimenting with inclusive credit systems. The US, despite its innovation narrative, lags behind in systemic fairness.

Our Viewpoint

The US credit scoring system is not broken — it’s working exactly as intended. But its intentions don’t align with consumer well-being. As debt levels climb and buy now, pay later adoption explodes, consumers who follow surface-level advice will fall further behind. Strategic literacy, not just basic budgeting, is the new currency of financial survival. Business leaders, regulators, and technologists must stop pretending this is just a “financial education” problem. It’s a systemic design choice — and it’s time to redesign it.