The US is as far as I know the only country in the world who have a positive creditscore system.
At least in Europe it's mostly based on a negative creditscore i.e. you are trusted by definition but if you don't pay your bills you end up not being allowed access to credit.
In the US they don't trust you per definition and instead you have to prove that you are good with money by basically creating debt and then paying it off.
This is obviously to say the least absurdly backwards, but I believe there is a rational explanation and that is that the US is a country of immigration and so you had to find a way to allow foreign people without any history and no reason to trust them.
I felt pretty "trusted by definition." Citi gave me a credit card with a $3,000 limit as a college freshmen. A few years later I had an $8,000 limit card and a $10,000 limit card.
I bought my car certified-pre-owned under a program that writes favorable low-cost loans to recent college graduates with no or limited credit history (with an offer letter or paystubs).
You just aren't trusted with housing-sized amounts of money until you demonstrate responsibility with smaller dollar values first.
>basically creating debt and then paying it off
This depends on your definitions a little bit. You don't need to carry a balance and you certainly don't need to pay interest. You just need to create low but nonzero utilization on a credit card, pay it off every month, and not do anything else that might screw up your credit. I suppose you have debt in the interim between making the charge and paying it off, but most people don't consider it to be "credit card debt" if it goes away between statement cycles.
I don't see what's so strange about this. Let's say you were lending money. Would you prefer to lend it to a person with an established history of taking out and then paying back loans, or a person with zero history either way?
I don't think it's accurate to describe the system as starting out not trusted. There are many levels, and misbehavior can easily give you worse credit than the default. You start out neutral and then go up or down depending on what you do. Which seems like exactly how it should be.
I'm curious why you think that is absurdly backwards. Not necessarily disagreeing, but it's not hard to justify wanting to see a history of repayment vs trusting by default.
I don't think this is the cause, but it does appear to be a virtuous feedback cycle: the creation of debt must continue for the economy to function. Practically forcing people to create debt allows the system to continue.
"that is that the US is a country of immigration and so you had to find a way to allow foreign people without any history and no reason to trust them."
Remember our banking system in U.S. pays politicians to create laws that benefit them. It's actually not much a stretch to even claim they own the country between ex-bankers doing the regulations, bankers paying off politicians, bankers getting bailouts, the Fed, and bankers obviously controlling financial backbone of economy. So, I always consider whether this could have impacted a law, standard practice, or whatever.
Well, one thing they like is you buying stuff with their money and paying interest. It's basically how they all make money outside things like fees and services. Guess what our "backwards" credit system forces us to do. You were absolutely correct if you guessed "guarantee billions in profits for bankers." I'm not sure if they created the original model but it should be on list of possibilities to consider given they pull lots of stuff like this.
Another example they probably paid politicians for is how they do tax write-offs on charged-off loans they're not going to collect. The reasonable parts are them not paying taxes on loans they can't collect and borrower paying taxes on amount they borrowed because it's effectively income. The sneaky modification they also write off the interest and fees they charged on top while borrower pays taxes on those as if they were income. Interest and fees certainly aren't income. This scheme works great for banks and IRS but not consumers.
NZ and Australia both have positive credit score systems (both introduced in the past 10 years).
I wouldn't necessarily agree with a gut reaction that positive credit scores are absurdly backwards. It makes sense that I would trust someone more as a borrower if I know they have repaid debts in the past (versus having no history at all). The system could probably use improvements and more regulation, but I don't think it's fundamentally off base.
It's not the only country in the world to do it. South Africa does it as well. You don't get credit by default, and instead you have to earn it by doing incremental "small" debt-like things. E.g. post-paid telephone accounts, buying small items of furniture on a payment system, etc.
Until you do those things, you are most likely going to get denied high-ticket loans such as mortgages and car-financing.
> In the US they don't trust you per definition and instead you have to prove that you are good with money by basically creating debt and then paying it off.
This seems backwards to me. The proof that I am good with money is that I have never been in debt. When I got my home loan the additional proof was having a deposit.
I don't know... As a foreign student I was for some reason given some positive credit score. That was surprising enough, but not as surprising as having my credit limit raised very liberally every time I reached it. I can tell you that doesn't happen in Spain at least (and seems in reality more sensible).
> In the US they don't trust you per definition and instead you have to prove that you are good with money by basically creating debt and then paying it off.
You have to do the same to get a mortgage in UK. And that's why I need a credit card
How much is this connected to not having a real id card?
For me is always weird when you see things like "no flight lists" and it is just a list of names. In Spain or Sweden your ID will be listed and the rest of people named like you spared of being harassed.
Another concept that I don't understand is that USA's social security number has to be kept secret or otherwise your identity can be stolen. How that is even possible? Doesn't your employer needs it?
An ID card is not perfect. 40 years ago Spain issued some duplicated numbers, before computers were so prevalent, causing problems. But it solves a lot of problems.
It always seems that private and public bureaucracy in the States is worst that it needs to be.
Speaking of credit annoyances, I've seen a lot of "dark patterns" appearing on the credit agency websites for ordering your Federally-mandated free annual credit report. Their workflow for getting the credit report is structured to push you towards signing up for some kind of monthly subscription to some monitoring service, to the point where it's very difficult to find the buttons to just get the free credit report. And if you do accidentally sign up for their monthly service, of course you can only cancel over the phone during business hours. Just waiting for them to start understaffing these call centers so that the waits extend past an hour...
UK credit score provider Experian used to rely on dark patterns[1] but seems to have moved towards offering consumer finance price comparison services with the useful side benefit of being able to search for stuff you'll be approved for. (I doubt they get many signups for the £14.99 a month "premium" service now they're pushing the free one alongside it)
I can't think of many more unconscionable models for a secondary revenue stream than targeting people who are insecure about their finances and bad at reading small print and trying to get them to pay nearly 100x the price they need to pay for information for some extras they're unlikely to use.
[1]in the UK they're actually allowed to charge a small one-off handling fee of up to £2 if you request your credit store. But "free" plus a large recurring charge for bundled extra data if you don't cancel within 30 days was more profitable...
If you accidentally sign up for a monthly subscription, call your credit card company and tell them never to pay it and to charge back any fees, because it was too difficult to cancel.
The whole credit reporting system is a money making racket and there is zero interest in keeping the information in it accurate. No one is held responsible for mistakes and the suffering people go thought because of it.
I would hope the entities purchasing the credit reports (landlords, employers, whomever) would care about their accuracy but usually this doesn't seem to be the case. From what I've seen any false negatives around bad credit just ends up in a person being passed upon during evaluation as a tenant or employee and nobody follows up with the ratings agencies.
Credit reporting system works pretty well and it is evident by the fact that we have seen mortgage bubble burst (where government forced banks to ignore credit ratings) and student loan bubble building up (ditto as housing loans).
The marginal gain in making it more accurate is not very much so I am pretty sure banks will not put efforts in that direction. Also, banks don't care if 1 in 10000 get screwed up because of their mistake because there is plenty of more fish in the pond. But that is how the world works.
So do you have a suggestion for a system that works better, or do you prefer banks lend the money from your savings account without any sort of evaluation of how likely it is to be paid back?
Same goes for every credit rating agency in the country (world?). Remember all those AAA rated swaps?
It is disturbing how the entire economic system is set up to make life harder on those it's hardest on. Poor, in debt, barely making ends meet? You're lucky if you can get a credit card for under 30% APR. Mortgage rates historically low? Not for you. Need a loan? Sucks to be you.
Finally clawed your way out of debt, trying to get ahead? Tough shit, your credit report will haunt you for the better part of a decade.
When I turned 18, I decided that it would be a good idea to get a credit report from all three agencies just to check what was on there. I found that there were multiple accounts tied to my credit score from before I was born. Two of the credit agencies removed them fairly easily, but to this day, one of them has refused to remove the accounts. Why? Because I can't prove that I did not live in the area the account was opened in. Not being born yet has so far not been good enough. It's just been a process of me mailing them, waiting 6 months for them to respond with some request for some more information, repeat.
My father and I have the same first name and middle initial (but different middle names).
As a result, I've spent at least 1 entire calendar month in the past decade to "disentangle" our credit reports. With Equifax it wasn't finally resolved until I showed up unannounced at a regional office in a suit.
Yet again, we're entangled with TransUnion (after last resolving it 18 months ago), with me having to enter security questions as if I were my father in order to confirm my identity.
The most maddening part is it is extremely difficult to talk to someone in the US if you have a problem with any of the large three bureaus.
The credit reporting system probably wouldn't work if you had to have the account holder's 'permission' to add events to it - you have to do it in this automated way.
Although it can be a pain, the responsibility of if your credit report is accurate falls on you, the consumer. You should many of the free services to check your credit and then dispute any events that aren't correct. Most people don't have issues but you can have companies that don't report payoffs (they should be fined or something), companies that assign accounts to the wrong person/SSN, etc.
PSA: If, like me, you sign up on www.transunion.com to view your account, be aware that the sign-up process uses dark patterns to stealthily sign you up for a $19.95 / month subscription.
The 'Cancel Membership' page is hard to find, but here it is:
'And 5 percent had errors that could be devastating, potentially denying lines of credit to them and making things like auto insurance prohibitively expensive. “To have that error level, it’s akin to 5 percent of automobiles spontaneously accelerating and having an accident, or 5 percent of planes falling from the sky,” Wu says. “We wouldn’t accept that error rate in other areas.”'
This is a dishonest statement. Having your insurance be slightly higher isn't nearly as serious as having your plane fall out of the sky. And if only 5% of software had bugs, we'd call it one of mankind's greatest triumphs.
The only thing in this article that concerns me is this statement:
"Those two states denied his application after he failed a credit check[...]"
The government shouldn't be allowed to depend on private companies to approve or reject you in this manner, because then a company like Experian is - in a small way - deciding the law. And Experian in particular is a foreign corporation(headquartered in Ireland), so it's doubly-problematic.
Multiple government systems rely on Experian for identity verification. If you don't have credit, you don't exist in the system according to the government. I've run into this personally with healthcare.gov and state medicaid applications, as well as commercial uses like Amazon Payments.
In Germany, it was long years the custom, that when somebody asked the agency about his score, they in turn dropped his score.
This is not legal anymore, as much I know, but still also in Germany, your fate is sometimes bound to the street, in which you live, instead of your own behavior.
Here's something I've wanted to know for a while: How is a foreigner emigrating to the USA (or Canada I guess) supposed to function? We don't use credit cards in my country (we use direct debit cards) and I've never had any debt to my name. On the other hand, I've always paid all my bills on time. Do you get some sort of crappy default credit score given based on estimated factors, or are you SOL until you've lived long enough to establish a credit history?
1. Signup for https://www.creditkarma.com. Yes, you can argue about giving your credentials to a 3rd party company and they show you ads but credit karma sends me real time activity on my credit report FOR FREE. I get offers etc but I am happy since I can keep an eye on my credit report from all agencies. (except Experian who want you to pay them for report).
3. Get your FICO score from discover [0] for free OR Open a credit card with Citi cards [1] and I think for $95/Year fee, they give you free FICO score which is the score that majority of lenders use. There are many other companies that offer FICO score for a fee but this was a good way for me since I needed that type of card anyway.
4. Check your credit card and bank statements every few days. I do it once a week. It is a good habit. For this step, do it manually. Don't rely on mint or tools like that. Check the transactions manually.
5. Setup alerts with your bank/credit card for transactions with a certain threshold. For example, I have alerts for anything over $10. For under $10, see Step 4. This is another step in case you do have a fraud.
5. Don't give out your SSN or credit information to anyone unless absolutely sure. Never give these on a phone call with any company unless you know that you called that company and they need the info (example: health insurance etc).
6. If you ever get a call from a Collection Agency, do not give them your information right away. Lot of collection calls are plain fraud or incorrect. Ask them to send a letter with details (genuine ones will do anyway). Read this from FTC about debt collection to educate yourself
All this to just keep your record clean and not have your bank misplace your money?
These are things you should not have to worry about in life.
They are expected and in most modern countries are not something you need to worry about.
When I tell my friends about this in the US at first they don't believe me. The can't believe that the banks make so many mistakes (such as credit/debit the wrong person for a check) and that there is this thing called a credit score which you have very little control over and can ruin you without you doing anything wrong.
The amount of time I have wasted in fixing credit scores and dealing with overdraft fees because someone else's check was pulled on the wrong account is staggering.
In California at least you can "security freeze" your credit reports so no one can apply for credit in your name. You have to temporarily "unfreeze" them (with a pin code) for someone to get a report. I was a victim of identity theft many years ago (from an employee in my company no less), and while I didn't loose any money, it was a huge hassle to straighten it out. If you don't regularly need services that require a credit report freezing them is much simpler than monitoring the credit agency. I did this many years ago and it really is a lot simpler solution in my opinion than constant monitoring.
Incidentally when I was an identity theft victim they didn't remove the incorrect information, they just said the fraudulent credit cards were "never late" and thus would not affect my score. I thought that was lame.
> 3. Get your FICO score from discover [0] for free OR Open a credit card with Citi cards [1] and I think for $95/Year fee, they give you free FICO score which is the score that majority of lenders use. There are many other companies that offer FICO score for a fee but this was a good way for me since I needed that type of card anyway.
As well as Discover, Barclays and USAA credit cards both offer (one of) your credit scores without paying an annual fee.
I have calendar reminders set four months apart to get and review credit reports, going round-robin through credit agencies. This gets me a (free) credit report 3 times a year.
I have a Citi Doublecash with no annual fee and they provide a credit score. Been with them for many years though so your eligibility may vary.
[+] [-] ThomPete|9 years ago|reply
At least in Europe it's mostly based on a negative creditscore i.e. you are trusted by definition but if you don't pay your bills you end up not being allowed access to credit.
In the US they don't trust you per definition and instead you have to prove that you are good with money by basically creating debt and then paying it off.
This is obviously to say the least absurdly backwards, but I believe there is a rational explanation and that is that the US is a country of immigration and so you had to find a way to allow foreign people without any history and no reason to trust them.
[+] [-] superuser2|9 years ago|reply
I felt pretty "trusted by definition." Citi gave me a credit card with a $3,000 limit as a college freshmen. A few years later I had an $8,000 limit card and a $10,000 limit card.
I bought my car certified-pre-owned under a program that writes favorable low-cost loans to recent college graduates with no or limited credit history (with an offer letter or paystubs).
You just aren't trusted with housing-sized amounts of money until you demonstrate responsibility with smaller dollar values first.
>basically creating debt and then paying it off
This depends on your definitions a little bit. You don't need to carry a balance and you certainly don't need to pay interest. You just need to create low but nonzero utilization on a credit card, pay it off every month, and not do anything else that might screw up your credit. I suppose you have debt in the interim between making the charge and paying it off, but most people don't consider it to be "credit card debt" if it goes away between statement cycles.
[+] [-] mikeash|9 years ago|reply
I don't think it's accurate to describe the system as starting out not trusted. There are many levels, and misbehavior can easily give you worse credit than the default. You start out neutral and then go up or down depending on what you do. Which seems like exactly how it should be.
[+] [-] rco8786|9 years ago|reply
[+] [-] jsprogrammer|9 years ago|reply
[+] [-] nickpsecurity|9 years ago|reply
Remember our banking system in U.S. pays politicians to create laws that benefit them. It's actually not much a stretch to even claim they own the country between ex-bankers doing the regulations, bankers paying off politicians, bankers getting bailouts, the Fed, and bankers obviously controlling financial backbone of economy. So, I always consider whether this could have impacted a law, standard practice, or whatever.
Well, one thing they like is you buying stuff with their money and paying interest. It's basically how they all make money outside things like fees and services. Guess what our "backwards" credit system forces us to do. You were absolutely correct if you guessed "guarantee billions in profits for bankers." I'm not sure if they created the original model but it should be on list of possibilities to consider given they pull lots of stuff like this.
Another example they probably paid politicians for is how they do tax write-offs on charged-off loans they're not going to collect. The reasonable parts are them not paying taxes on loans they can't collect and borrower paying taxes on amount they borrowed because it's effectively income. The sneaky modification they also write off the interest and fees they charged on top while borrower pays taxes on those as if they were income. Interest and fees certainly aren't income. This scheme works great for banks and IRS but not consumers.
[+] [-] adrianmacneil|9 years ago|reply
I wouldn't necessarily agree with a gut reaction that positive credit scores are absurdly backwards. It makes sense that I would trust someone more as a borrower if I know they have repaid debts in the past (versus having no history at all). The system could probably use improvements and more regulation, but I don't think it's fundamentally off base.
[+] [-] lrem|9 years ago|reply
[+] [-] dakial|9 years ago|reply
[+] [-] cesarb|9 years ago|reply
They are trying to bring something like that to Brazil too. Fortunately, it's opt-in, at least for now.
[+] [-] zo1|9 years ago|reply
Until you do those things, you are most likely going to get denied high-ticket loans such as mortgages and car-financing.
[+] [-] flukus|9 years ago|reply
This seems backwards to me. The proof that I am good with money is that I have never been in debt. When I got my home loan the additional proof was having a deposit.
[+] [-] ezequiel-garzon|9 years ago|reply
[+] [-] framp|9 years ago|reply
You have to do the same to get a mortgage in UK. And that's why I need a credit card
[+] [-] kartan|9 years ago|reply
For me is always weird when you see things like "no flight lists" and it is just a list of names. In Spain or Sweden your ID will be listed and the rest of people named like you spared of being harassed.
Another concept that I don't understand is that USA's social security number has to be kept secret or otherwise your identity can be stolen. How that is even possible? Doesn't your employer needs it?
An ID card is not perfect. 40 years ago Spain issued some duplicated numbers, before computers were so prevalent, causing problems. But it solves a lot of problems.
It always seems that private and public bureaucracy in the States is worst that it needs to be.
[+] [-] ufmace|9 years ago|reply
[+] [-] gcr|9 years ago|reply
[+] [-] notahacker|9 years ago|reply
I can't think of many more unconscionable models for a secondary revenue stream than targeting people who are insecure about their finances and bad at reading small print and trying to get them to pay nearly 100x the price they need to pay for information for some extras they're unlikely to use.
[1]in the UK they're actually allowed to charge a small one-off handling fee of up to £2 if you request your credit store. But "free" plus a large recurring charge for bundled extra data if you don't cancel within 30 days was more profitable...
[+] [-] Karunamon|9 years ago|reply
[+] [-] fragsworth|9 years ago|reply
[+] [-] sschueller|9 years ago|reply
[+] [-] lreeves|9 years ago|reply
[+] [-] tn13|9 years ago|reply
Credit reporting system works pretty well and it is evident by the fact that we have seen mortgage bubble burst (where government forced banks to ignore credit ratings) and student loan bubble building up (ditto as housing loans).
The marginal gain in making it more accurate is not very much so I am pretty sure banks will not put efforts in that direction. Also, banks don't care if 1 in 10000 get screwed up because of their mistake because there is plenty of more fish in the pond. But that is how the world works.
[+] [-] bsbechtel|9 years ago|reply
[+] [-] themartorana|9 years ago|reply
It is disturbing how the entire economic system is set up to make life harder on those it's hardest on. Poor, in debt, barely making ends meet? You're lucky if you can get a credit card for under 30% APR. Mortgage rates historically low? Not for you. Need a loan? Sucks to be you.
Finally clawed your way out of debt, trying to get ahead? Tough shit, your credit report will haunt you for the better part of a decade.
[+] [-] necessity|9 years ago|reply
[+] [-] Meegul|9 years ago|reply
[+] [-] aboonaboo|9 years ago|reply
[+] [-] MrFoof|9 years ago|reply
As a result, I've spent at least 1 entire calendar month in the past decade to "disentangle" our credit reports. With Equifax it wasn't finally resolved until I showed up unannounced at a regional office in a suit.
Yet again, we're entangled with TransUnion (after last resolving it 18 months ago), with me having to enter security questions as if I were my father in order to confirm my identity.
The most maddening part is it is extremely difficult to talk to someone in the US if you have a problem with any of the large three bureaus.
[+] [-] bluedino|9 years ago|reply
Although it can be a pain, the responsibility of if your credit report is accurate falls on you, the consumer. You should many of the free services to check your credit and then dispute any events that aren't correct. Most people don't have issues but you can have companies that don't report payoffs (they should be fined or something), companies that assign accounts to the wrong person/SSN, etc.
[+] [-] MiguelVieira|9 years ago|reply
The 'Cancel Membership' page is hard to find, but here it is:
https://membership.tui.transunion.com/tucm/cancelMembership....
[+] [-] MichaelBurge|9 years ago|reply
This is a dishonest statement. Having your insurance be slightly higher isn't nearly as serious as having your plane fall out of the sky. And if only 5% of software had bugs, we'd call it one of mankind's greatest triumphs.
The only thing in this article that concerns me is this statement:
"Those two states denied his application after he failed a credit check[...]"
The government shouldn't be allowed to depend on private companies to approve or reject you in this manner, because then a company like Experian is - in a small way - deciding the law. And Experian in particular is a foreign corporation(headquartered in Ireland), so it's doubly-problematic.
[+] [-] waterphone|9 years ago|reply
[+] [-] PythonicAlpha|9 years ago|reply
This is not legal anymore, as much I know, but still also in Germany, your fate is sometimes bound to the street, in which you live, instead of your own behavior.
[+] [-] sdenton4|9 years ago|reply
[+] [-] Asooka|9 years ago|reply
[+] [-] jwatte|9 years ago|reply
Social security number as globally unique ID would actually improve security and accuracy in most areas of life!
But numbers. Scary! What if I actually have something to hide?
[+] [-] swayvil|9 years ago|reply
[+] [-] codegeek|9 years ago|reply
1. Signup for https://www.creditkarma.com. Yes, you can argue about giving your credentials to a 3rd party company and they show you ads but credit karma sends me real time activity on my credit report FOR FREE. I get offers etc but I am happy since I can keep an eye on my credit report from all agencies. (except Experian who want you to pay them for report).
2. Get a free credit report once a year from https://https://www.annualcreditreport.com
3. Get your FICO score from discover [0] for free OR Open a credit card with Citi cards [1] and I think for $95/Year fee, they give you free FICO score which is the score that majority of lenders use. There are many other companies that offer FICO score for a fee but this was a good way for me since I needed that type of card anyway.
[0] https://www.discover.com/free-credit-score/
[1] https://www.cardbenefits.citi.com/Products/FICO-Score
4. Check your credit card and bank statements every few days. I do it once a week. It is a good habit. For this step, do it manually. Don't rely on mint or tools like that. Check the transactions manually.
5. Setup alerts with your bank/credit card for transactions with a certain threshold. For example, I have alerts for anything over $10. For under $10, see Step 4. This is another step in case you do have a fraud.
5. Don't give out your SSN or credit information to anyone unless absolutely sure. Never give these on a phone call with any company unless you know that you called that company and they need the info (example: health insurance etc).
6. If you ever get a call from a Collection Agency, do not give them your information right away. Lot of collection calls are plain fraud or incorrect. Ask them to send a letter with details (genuine ones will do anyway). Read this from FTC about debt collection to educate yourself
https://www.consumer.ftc.gov/articles/0149-debt-collection
These steps will keep you safe for the most part.
Fun fact about credit reports: See this video by John Oliver.
https://www.youtube.com/watch?v=aRrDsbUdY_k
[+] [-] sschueller|9 years ago|reply
These are things you should not have to worry about in life.
They are expected and in most modern countries are not something you need to worry about.
When I tell my friends about this in the US at first they don't believe me. The can't believe that the banks make so many mistakes (such as credit/debit the wrong person for a check) and that there is this thing called a credit score which you have very little control over and can ruin you without you doing anything wrong.
The amount of time I have wasted in fixing credit scores and dealing with overdraft fees because someone else's check was pulled on the wrong account is staggering.
[+] [-] mcshicks|9 years ago|reply
Incidentally when I was an identity theft victim they didn't remove the incorrect information, they just said the fraudulent credit cards were "never late" and thus would not affect my score. I thought that was lame.
https://oag.ca.gov/idtheft/facts/freeze-your-credit
[+] [-] loeg|9 years ago|reply
As well as Discover, Barclays and USAA credit cards both offer (one of) your credit scores without paying an annual fee.
[+] [-] mng2|9 years ago|reply
I have a Citi Doublecash with no annual fee and they provide a credit score. Been with them for many years though so your eligibility may vary.
[+] [-] xanderstrike|9 years ago|reply
[+] [-] edoceo|9 years ago|reply
[+] [-] puppetmaster3|9 years ago|reply
[+] [-] DenisM|9 years ago|reply
Is anyone working on it? Seems like a lot of money just sitting on the table.
[+] [-] trolla|9 years ago|reply
In case of Hello Soda they are using social media data for credit scoring.
PS I'm not associated with any of these companies.
[+] [-] GirlsCanCode|9 years ago|reply
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[+] [-] andrewalanhacks|9 years ago|reply
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