And when you have an industry surrounding it (specialised companies that do only this & fund lobbies) the system just becomes a perpetual business for the sake of it, can’t get rid of it.
Like filling for taxes in USA (or did that just recertify change?).
Or private prisons.
Too much profit incentive & too many people involved to allow it to be dismantled once it became obvious the product doesn’t work/it doesn’t give any added value.
If you’ve got savings and a steady job and can offer something a house as security they’re gonna lend you the money to buy thay house, even if you don’t have a score.
The score as a number, and the concept of building your credit score, is really just something bankers tell you when they’re trying to get you to take a credit card.
You don’t have to actually “take on debt” to establish a good credit score, though. If you use a credit card whenever you’d otherwise use cash you have on hand, and instead use that cash to pay off the card’s statement balance every month (essentially just paying your month’s expenses all at once instead of on demand for each expense), you’re never truly in debt (read: you’re charged no interest), but a credit score is established and continuously improved, via both the consistent payments, and the aging of that line of credit.
So your credit worthiness is equal to the amount of money (3% fee of each purchase?) you make for the bank that would otherwise go to the seller (or stay in your bank account if it’s charged to the customer & not the store, but that is afaik rare, maybe not existent anymore).
So free monies you make for the bank = some potential loan possibility in the future.
Scammy af. But this exists all over the world (packaged as cashbacks that you regularly receive, eg 0.5% of everything you spend, not affecting your loans).
Also if you repay your loan early is somehow bad for your credit score.
If you change your bank to go to a cheaper one alters your score (creating sticky monopolies).
makes prefect sense
To scam citizens out of yields while minimising the chance of nonperforming loans?
The rest of the world puts citizens first.
The banks are the professionals with all the data & capital. They get to multiplicate money (give loans without backing) and get to charge relatively big interests on those loans (interes rates (spreads over risk-free) tnot indicative of/to cover the expenses of defaults, which are very rare overall, or their own operating costs).
The money multiplication thing comes from the state (central bank), and it exists to allow people to live & to perpetually stimulate the economy (eg getting a house earlier than saving up the lump sum to buy it whole). The banks job is to balance things out & offer competitive loans in terms of profits vs probability of defaults. Without that it’s just free money for the banks. Like insurance business only selling policies to people/entities that won’t ever need them.
Also if you repay your loan early is somehow bad for your credit score.
The tradeline doesn’t disappear from your credit report when you pay it off. It continues to benefit your average age of accounts for up to ten years (note that credit score estimates like Credit Karma do not work this way, and stop considering the loan the instant it’s closed, which is not the way it works at the three credit bureaus—more info on the differences between Credit Karma’s system and your actual credit score here).
It’s trivial to have and maintain a good credit score with a revolving credit line (e.g. credit card) you’re using and paying every month; installment loans are temporary by definition, and considering that loans with 0% interest essentially don’t exist, they are not the way to go about building your credit score; they’re what you use your good credit score to get as good a rate as possible.
With regular credit card use only, my credit score is well over 750 (and 750+ is top-tier from the perspective of basically 100% of lenders). And the last installment loan I had (car purchase over a decade ago), I coincidentally DID pay off early. Also, my average credit age, just checked, is 7y 9mo, less than the ten years mentioned above.
To scam citizens out of yields while minimising the chance of nonperforming loans?
Credit scores can only benefit good borrowers. Without them, everyone gets treated the same as people who have never borrowed, and lenders are obviously going to err on the side of caution (read: higher interest rates) when lending to someone who’s a big question mark. But with credit scores, lenders can know who the ones who do make their payments regularly are, in other words, who it’s least risky to lend to, which leads to lower interest rates.
In short, without credit scores, everyone gets shitty rates. With them, only shitty borrowers get shitty rates.
To reiterate, the bottom line is that you don’t need to pay a single penny of interest to have a superb credit score. Just use a credit card and don’t borrow more than you can pay off every month, same way you’d be limited if you were spending cash on the spot each time. That’s literally all it takes.
7~10 years on a car is predatory & shouldn’t even be allowed. You overpaid half the car.
Difference between high & low(er) interest rates is access to credit & purchasing power. It determines what/where or even if you can buy a house. There are even USA pop culture reference to not having a good enough score so they don’t get a loan.
And y’all interest rates are still high, regardless of the score.
Forced use credit cards takes away money from the stores & you get almost nothing in return (you should get money back, not some weird promise on loan rates that saves you money only bcs of ridiculous rates & long borrowing).
And repaying credit card (interest or not) has 0 relation to repaying a 10+ year mortgage. It’s just bs to get the banks (and Visa/MC) obscene amounts of free revenue/profit & they don’t have to do anything in return. Just think of how much money have “you” given the bank if 3% of all your purchases went to them. It’s not that you directly lost that (tho through general inflation & stores overcharging you to cover what goes to the bank you have), but didn’t get anything for selling/promoting their product either.
Different counties over the world use different systems, but most don’t allow centralised private databases (tho some big ones still use it) that lenders can just access personal data on citizens (and all of them have problems).
Some countries have defaults or unpaid taxes accessible to lenders (via gov agencies/portals, not private firms).
Tho the best systems are just every lender for themselves & on data you provide them - statistics show how rare defaults are & how they don’t really affect any lenders (except in a macroeconomic crisis, where eg the underlying real estate losses value).
And statistics also show that the prob of default are basically just related to wages (how much money is left to the borrower each month overall) & collateral.
That’s is what central banks put restrictions on to govern monetary policy (besides overnight rates & gov debt ofc) & banking sector stability.
And in terms of eg mortgages - credit score is useless, you have real estate value that more than covers the lean & just about any borrower would have a lot more problems & to lose in event of default so they already try to avoid it as much as they can.
Credit scores don’t lower bank insolvency rates, at most they help with the profit, but most importantly they arent really relevant to a lenders core business success.
Reread what I wrote, I didn’t have a protracted auto loan. I actually paid the car off a few months after I financed it, because I didn’t want to pay any more interest (even at 0.9%) and I could afford it. I don’t even remember what the original term was.
And it determines where you can live, what jobs tou can hold, and wheree your kids can go to school. The system that was developed immediately aftyer the federal government said you can’t discriminate on race is definitely fair.
And it determines where you can live, what jobs tou can hold, and wheree your kids can go to school.
How? Wealth determines that, not your loan repayment history. You can be barely making ends meet (and therefore very limited in the above stuff) with a perfect credit score, and a millionaire (and therefore practically unlimited in the above stuff) with a shitty one, or none at all if you inherited enough wealth that you never had to take any loans.
You are not gonna believe where the majority of the wealth of the majority of USA residents comes from.
Also can’t look at credit score system without loan system (they are linked by default) - and loan-worthiness cames from not only paychecks, but also where (which street/neighborhood) you currently live, you job history, criminal convictions, etc.
It does what the West says the Chinese social credit system is doing tho the later isn’t that consequential & focuses on convictions.
And rich people (millionaires aren’t rich anymore, just the last thrashes of a middle class) don’t need a credit score at all, they all take out business loans, not personal loans.
The credit score system wasn’t invented to oppress the rich.
The credit score system wasn’t invented to oppress, period. It was invented to keep lenders from having to guess whether someone they lend to is ‘good for it’. Before that, it was all based on assumptions, which naturally led to conclusions being drawn based on things like appearance, race, sex, etc.
I’d rather be judged based on the fact that I can prove I repay my debts, and nothing else. A credit score system is the means of proving that.
The scoring system has also been critiqued as a form of classification to shape an individual’s life-chances—a form of economic inequality. Since the 1980s, neoliberal economic policy has created a correlation between the expansion of credit and a decline in social welfare—deregulation incentivizes financing for the consumption of goods and services that the welfare state would alternatively provide. Credit scoring systems are seen as scheme to segregate individuals creditworthiness necessitated by the loss of these collective social services. The credit scoring system in the United States has been compared to, and was the inspiration for, the Social Credit System in China.
Lenders don’t guess, there are strict rules that FED oversees.
Your probability of repaying your loan is depending on your wage & on collateral.
You can’t prove you will repay your debts in the future. You might lose the income you depend on & some new guy that just got a job might have it for 40 years. How easy will you get another job also depend on factors that the credit score doesn’t include.
Isn’t that what credit score already is?
Just expand that, maybe with generative AI since the accuracy doesn’t matter.
/s
Just use musk logic: the data is incomplete, so extrapolate missing data with data you feel should constitute proper results
Yes, basically this.
And when you have an industry surrounding it (specialised companies that do only this & fund lobbies) the system just becomes a perpetual business for the sake of it, can’t get rid of it.
Like filling for taxes in USA (or did that just recertify change?).
Or private prisons.
Too much profit incentive & too many people involved to allow it to be dismantled once it became obvious the product doesn’t work/it doesn’t give any added value.
Not really, a credit score is based on your ability to repay loans.
As well as your willingness to take on debt.
No credit score (AKA living so frugally that you don’t need credit) is a bad score too.
Is it though?
I work on an adjacent industry.
Lenders lend money, that’s how they make money.
If you’ve got savings and a steady job and can offer something a house as security they’re gonna lend you the money to buy thay house, even if you don’t have a score.
The score as a number, and the concept of building your credit score, is really just something bankers tell you when they’re trying to get you to take a credit card.
So if you have taken more loans in the past & repaid a lot of credit card debt you get a cheaper loan/can afford a bigger loan.
It’s what we call predatory tactics & are usually banned.
Fixed.
But still not true. The correlation is low, the system just feeds itself.
You don’t have to actually “take on debt” to establish a good credit score, though. If you use a credit card whenever you’d otherwise use cash you have on hand, and instead use that cash to pay off the card’s statement balance every month (essentially just paying your month’s expenses all at once instead of on demand for each expense), you’re never truly in debt (read: you’re charged no interest), but a credit score is established and continuously improved, via both the consistent payments, and the aging of that line of credit.
So your credit worthiness is equal to the amount of money (3% fee of each purchase?) you make for the bank that would otherwise go to the seller (or stay in your bank account if it’s charged to the customer & not the store, but that is afaik rare, maybe not existent anymore).
So free monies you make for the bank = some potential loan possibility in the future.
Scammy af. But this exists all over the world (packaged as cashbacks that you regularly receive, eg 0.5% of everything you spend, not affecting your loans).
How do you know that? The algo is proprietary, anything can go into it
The minutia of the algorithm is private, to prevent gaming it, but the major factors are very well known, and make perfect sense.
Also if you repay your loan early is somehow bad for your credit score.
If you change your bank to go to a cheaper one alters your score (creating sticky monopolies).
To scam citizens out of yields while minimising the chance of nonperforming loans?
The rest of the world puts citizens first.
The banks are the professionals with all the data & capital. They get to multiplicate money (give loans without backing) and get to charge relatively big interests on those loans (interes rates (spreads over risk-free) tnot indicative of/to cover the expenses of defaults, which are very rare overall, or their own operating costs).
The money multiplication thing comes from the state (central bank), and it exists to allow people to live & to perpetually stimulate the economy (eg getting a house earlier than saving up the lump sum to buy it whole). The banks job is to balance things out & offer competitive loans in terms of profits vs probability of defaults. Without that it’s just free money for the banks. Like insurance business only selling policies to people/entities that won’t ever need them.
With regular credit card use only, my credit score is well over 750 (and 750+ is top-tier from the perspective of basically 100% of lenders). And the last installment loan I had (car purchase over a decade ago), I coincidentally DID pay off early. Also, my average credit age, just checked, is 7y 9mo, less than the ten years mentioned above.
Credit scores can only benefit good borrowers. Without them, everyone gets treated the same as people who have never borrowed, and lenders are obviously going to err on the side of caution (read: higher interest rates) when lending to someone who’s a big question mark. But with credit scores, lenders can know who the ones who do make their payments regularly are, in other words, who it’s least risky to lend to, which leads to lower interest rates.
In short, without credit scores, everyone gets shitty rates. With them, only shitty borrowers get shitty rates.
To reiterate, the bottom line is that you don’t need to pay a single penny of interest to have a superb credit score. Just use a credit card and don’t borrow more than you can pay off every month, same way you’d be limited if you were spending cash on the spot each time. That’s literally all it takes.
Ngl & sorry but that sounds indoctrinated af.
7~10 years on a car is predatory & shouldn’t even be allowed. You overpaid half the car.
Difference between high & low(er) interest rates is access to credit & purchasing power. It determines what/where or even if you can buy a house. There are even USA pop culture reference to not having a good enough score so they don’t get a loan.
And y’all interest rates are still high, regardless of the score.
Forced use credit cards takes away money from the stores & you get almost nothing in return (you should get money back, not some weird promise on loan rates that saves you money only bcs of ridiculous rates & long borrowing).
And repaying credit card (interest or not) has 0 relation to repaying a 10+ year mortgage. It’s just bs to get the banks (and Visa/MC) obscene amounts of free revenue/profit & they don’t have to do anything in return. Just think of how much money have “you” given the bank if 3% of all your purchases went to them. It’s not that you directly lost that (tho through general inflation & stores overcharging you to cover what goes to the bank you have), but didn’t get anything for selling/promoting their product either.
Different counties over the world use different systems, but most don’t allow centralised private databases (tho some big ones still use it) that lenders can just access personal data on citizens (and all of them have problems).
Some countries have defaults or unpaid taxes accessible to lenders (via gov agencies/portals, not private firms).
Tho the best systems are just every lender for themselves & on data you provide them - statistics show how rare defaults are & how they don’t really affect any lenders (except in a macroeconomic crisis, where eg the underlying real estate losses value).
And statistics also show that the prob of default are basically just related to wages (how much money is left to the borrower each month overall) & collateral.
That’s is what central banks put restrictions on to govern monetary policy (besides overnight rates & gov debt ofc) & banking sector stability.
And in terms of eg mortgages - credit score is useless, you have real estate value that more than covers the lean & just about any borrower would have a lot more problems & to lose in event of default so they already try to avoid it as much as they can.
Credit scores don’t lower bank insolvency rates, at most they help with the profit, but most importantly they arent really relevant to a lenders core business success.
Reread what I wrote, I didn’t have a protracted auto loan. I actually paid the car off a few months after I financed it, because I didn’t want to pay any more interest (even at 0.9%) and I could afford it. I don’t even remember what the original term was.
Sorry, that wasn’t clear, the system is really alien to me.
But there are numerous reports from USA that paying of a loan early can hurt your credit score.
Which is def bad & counterintuitive.
The whole system is at best like a loyally card.
And it determines where you can live, what jobs tou can hold, and wheree your kids can go to school. The system that was developed immediately aftyer the federal government said you can’t discriminate on race is definitely fair.
Didn’t say it was fair or good.
How? Wealth determines that, not your loan repayment history. You can be barely making ends meet (and therefore very limited in the above stuff) with a perfect credit score, and a millionaire (and therefore practically unlimited in the above stuff) with a shitty one, or none at all if you inherited enough wealth that you never had to take any loans.
You are not gonna believe where the majority of the wealth of the majority of USA residents comes from.
Also can’t look at credit score system without loan system (they are linked by default) - and loan-worthiness cames from not only paychecks, but also where (which street/neighborhood) you currently live, you job history, criminal convictions, etc.
It does what the West says the Chinese social credit system is doing tho the later isn’t that consequential & focuses on convictions.
And rich people (millionaires aren’t rich anymore, just the last thrashes of a middle class) don’t need a credit score at all, they all take out business loans, not personal loans.
The credit score system wasn’t invented to oppress the rich.
The credit score system wasn’t invented to oppress, period. It was invented to keep lenders from having to guess whether someone they lend to is ‘good for it’. Before that, it was all based on assumptions, which naturally led to conclusions being drawn based on things like appearance, race, sex, etc.
I’d rather be judged based on the fact that I can prove I repay my debts, and nothing else. A credit score system is the means of proving that.
wiki/Criticism_of_credit_scoring_systems_in_the_United_States
Lenders don’t guess, there are strict rules that FED oversees.
Your probability of repaying your loan is depending on your wage & on collateral.
You can’t prove you will repay your debts in the future. You might lose the income you depend on & some new guy that just got a job might have it for 40 years. How easy will you get another job also depend on factors that the credit score doesn’t include.