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?
As one example that has affected me, I moved to the US a year ago. Go to buy a used car last month with bank statements showing a good salary and enough cash to buy the vehicle outright, a check for 1/3 of the car price, and phone numbers of my employer and landlord. All the banks the finance department contacted automatically denied me without looking at the stuff I brought.
I went to my local bank branch thinking a human might help. I got automatically denied, the manager tried to escalate given the information I provided, but I was still denied.
In the end my loan was through the car manufacturer at a fairly high rate.
I realize I am fortunate in that I can afford to take a crappy loan solely to build a credit history and play this silly game. But the way the model is used treats people who are new to obtaining US credit and people who have used credit terribly virtually identically.
Anyway, I had a similar issue with car loans when moving to the US. I've since realized that it's pretty trivial to increase your credit score if you pay a small amount of attention to it. Simply sign up for credit karma, get a few no annul fee credit cards, and put a small purchase on them every few months so that they don't get closed due to inactivity. Within 12 months your credit score will be stellar.
But then, after 3-4 years, it's pretty damn convenient not needing to mess around with lengthy applications for credit (except for possibly on a mortgage), and having a credit reputation that's completely portable across providers.
It pretty much makes sense that newly arrived residents are a corner case that isn't worth worrying about too much for the banks and credit reporting agencies - at any given time, the number of residents who have been here for less than, say, 2 years is going to be a pretty small, somewhat risky part of the market (less assets in the country, more likely to leave).
The banks do pay for it - they have to pay a fee do get your credit report.
They have a clear incentive to not underestimate prospective borrowers' credit risk (or they'll lose more in defaults than they gain in interest), but the only incentive to not overestimate someone's credit risk is that someone else might offer a loan on better terms. Even if they are aware of flaws in their assessment process that overestimate a borrower's risk, they probably feel safe in the knowledge that everyone else is using that same process and will overestimate risk in the same way. A more accurate credit assessor could profit from this situation ("get your credit reports from us, and you can undercut lenders who rely on the big three"), but the barrier to entry is rather high.