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Comment by MaxBarraclough | Hacker News Reader

> Note that your credit score or lack thereof is often used to deny housing and (for generally unsubstantiated reasons,) employment.

Not defending Equifax, but this is misleading. Credit checks are what enable lending of this sort in the first place.

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No. France for one does not have a similar system available and lending still works well.

How does France go about determining if someone is a good credit risk who pays their bills on time?

Call the bank and ask?

It really is amazing how until the current three credit reporting agencies came long, nobody in the history of humanity had managed to obtain a loan. We owe them a lot for inventing the entire idea of lending money.

We used to have debtors' prisons instead.

Used to?

It's a bit deeper than lend/not lend. Interest rates are determined in part by risk -- higher risk means higher rates are required to cover defaults across a given risk pool. Without granular risk assessments, I would think that the interest for everyone would be a bit higher, as it has to be enough to cover defaults. Is that the case? That is, in locations with detailed credit reporting, do people with very good credit end up with lower interest rates than borrowers in locations that don't have a credit reporting system?

Well, in recent-ish history many places had usury laws and even enforced ideas like Christians not charging interest to other Christians.

There are still places in the world today which have functioning credit markets despite prohibitions on charging interest.

Since this apparently isn't obvious to you, creditors have different interest rates and different loan terms for different risk pools. Your risk pool is determined, in part, by your history of borrowing and paying back money.

It isn't that lending doesn't exist without credit history, it's everyone gets the same shitty terms and shitty interest rate and banks are much more conservative in lending.

Apparently the other commenter is right, I should've used some kind of sarcasm mark.

The parent comment I was replying to seemed not to understand how a functioning credit/lending market could exist without Equifax-like centralized reporting agencies. The sarcastic point was that credit and lending existed and worked for millennia previously.

The point you are still missing is that better credit rating leads to lower interest and more efficient investing.

Which... didn't seem to be the claim made in the comment I originally responded to.

You clearly need to invent a way to indicate sarcasm more clearly.

In the long history of humanity, there was no real possibility of somebody living, say, in Oakland, California, to obtain a loan from a bank located in New York, without even meeting anybody from that bank or having any prior relationship or specific recommendations. Moreover, if you are a representative of lower classes, the best loan you could hope for is probably your local grocer deferring a payment for a week or so. But don't try to pull that on a grocer in the next village, unless you're a noble or something - he doesn't know you, so cash is king. Of course, if you're noble living in a big castle, things are different for you. Unfortunately, most of the people weren't. That's why prototype credit reporting agencies - with people literally having books where they recorded all kinds of info about people, like where they work, how they pay, do they have affairs (there's a risk they'd drop everything and run away with their affair partner if they do), are they gambling, are they drinking, etc. That's what gave the raise to the modern credit reporting agencies. But before that you surely had access to loans, but not nearly at the scale you have now. You didn't have online comparison of 50+ lenders competing to give you, sight unseen, the best rate. You had to convince your local banker, and if he didn't like you (for any reason, including speaking funny, having wrong complexion or not being in a good relationship with one of his friends), tough luck, no loan for you.

  1. there is less reliance on credit for day to day spending.
  2. banks are liable, so they're more careful. I don't get offers by mail for credit cards, 
     and the card I do have has stricter limits.
  3. a national ID system
  4. specifically for real estate, separate regulation exists. 
     You cant buy or sell real estate nor take out a mortgage without going through a notary 
     (heavily protected profession), who ensure that the real estate and the loan to pay for it remain linked.

Notaries, at least in Italy, are a plague on the system.

https://www.economist.com/news/finance-and-economics/2164680...

Notaries are Dante's 8th layer of hell.

I'm not convinced they're worse than an Italian version of Equifax.

They're awful in their own, different way. Did you follow any of the SRLS stuff? Guess who wailed and gnashed their teeth that barbarian hordes would descend on Italy if notaries weren't allowed to collect thousands of Euros for registering limited liability companies?

I've lived in Germany and the UK. Their reliance on credit cards is drastically different from the US.

You could, for example, put sufficient loan guarantees in place.

Not from France, but elsewhere in the EU there generally are registries of bad debts (with libel-like protections requiring the information on them to be true or removed).

So the bank looks at your income, possibly your expenses, and whether you've been defaulting in the past. If it's your bank, which it usually is, then they can probably mine your transaction history in more detail to decide how trustworthy you are.

Interesting. A quick perusal online and it seems they get by with bank statements/pay slips/tax documents to show that you're on the level. https://www.quora.com/Is-it-true-that-theres-no-credit-score...

I'm surprised that works at all. I wonder if it's quantitatively less 'effective'. (A quick Google didn't turn up much on that question.)

A company I work at more or less does the same thing, albeit in conjunction with a credit report. We're a marketplace lender operating internationally, and (from what I hear through the grapevine) it turns out the accuracy of credit reporting data outside of the US can be, put nicely, inaccurate.

Aside from that, if you want a business process for vetting credit to work across geographies, you can't be dependent on a particular agency or report being available for a specific locale. You _can_ however, almost always depend on a business keeping books and paying taxes.

How about better job security?

Not a replacement for a healthy lending.

Are you aware in Europe in general, there is much much less buying on credit?

How about mortgages?

Copy of employment contract. When independent, 3 yrs of yearly financial statements. SOP.

My point was whether they use mortgages in the first place. When you mentioned 'less buying on credit', that seemed the natural question to ask.

Dude, Wikipedia is right over there.

I'd like to challenge you to show some sources and declare in what kind of metric you're describing. Per person/capita, per household? etc.

I know people borrow money like they're crazy over here in Sweden. For consumption, for housing etc. (So much for the liberal-a-land it's portraited as in US media)

France (and other countries) does not use a FICO score. They mostly rely on your current income and to sometimes on your current wealth as collateral. But you cannot simply take the money, and never payback either. France has a central bank that has the power to freeze all your bank accounts/assets on the push of a button. Any bank can contact the central bank (even for an overdraft... happened to me :) and freeze immediately all bank accounts, credit cards, etc. And I don't know about loans for goods, but for real-estate, like here, until you paid your loan, the property is basically owned by the bank. Past behavior is not necessarily helping a lender to guess your capacity to payback in the future. If you act in good faith, you still can have issues (lost your job, health issue). As long as you sort it out the best you can with the lender, maybe you should not be punished for it later. I guess it is different risk management.

I think it's like that in most of Europe. It is at least in Estonia.

In the Czech Republic, it's pay slips/bank statements, or a work contract for mortgage (you cannot fire someone without a reason). There is a central government database of people who didn't pay a debt on time.

In Germany, also pay slips and work contracts. Additionally, there is a semi-private government-mandated company (I never understood why Germans don't complain about this) that maintains a database of existing debtors. You basically start with a perfect score and it decreases only when you don't repay on time.

There is a gigantic difference between who can get mortgages and at what kind of leverage one can get in Europe vs. United States.

Completely private and manual underwriting exists and always existed in the United States. The reason that it is not popular is that the vast majority of Americans would not qualify under any private underwriting guidelines for most of the loans Americans get ( and successfully pay for ).

"the Bank of France maintains files which are only available to financial institutions holding a licence delivered by the Bank of France. The files only relate to a person if they have written bad checks, have participated in fraudulent activities, have been declared bankrupt or have bounced checks in France."

So the bank of France is a centralized credit bureau. So going by that, it's actually much more similar than different from the US system. The US system adds proprietary algorithms designed by actuaries to that rather than, or in addition to, manually underwriting. But it's not all that different other than being for profit.

We have many private companies act as data brokers here in the US, as opposed to a single central bank or government agency, because Americans hate government and love private businesses. The US is like "the government can't do anything, let private companies handle it and make money off it and the free market solves everything." We seem to be just learning that the free market can have problems too...

Designing a centralized government run system is a non-starter in the US. Even now.

> So the bank of France partly is a centralized credit bureau. So going by that, it's actually more similar than different.

Only by what data they gather, and this stems from what the data is needed for. There is vast difference in purpose, though: the Bank of France is (a) a public institution that (b) does not earn money solely by selling every personal data they could put hands on to just about anybody. The incentives are totally different from Equifax'.

Note also that the data collected is not even remotely about everybody, as with Equifax.

My point is

1) banks need this information for underwriting

2) the US doesn't have and won't ever have a centralized government/public database that contains this information

3) the private market takes over and compiles that information for profit

The Equifax problem was poor data handling plus a lack of government interested in punishing them for it. Neither of those problems would be avoided if Equifax was a government agency.

While I'm inclined to agree that it would be better to have the government run it, you seem to be suggesting that this would be an, uh, ironclad silver bullet, as it were.

Doing so wouldn't guarantee either good security or general system effectiveness.

For certain values of "works well". I mean, I'm not defending the ratings agencies here, nor ignoring the real problems with cheap credit, but from an interest rate perspective, I don't think there's a better place to borrow money than the US. Head and shoulders better/cheaper than anywhere else I'm aware of.

Why is it better?

It has it's roots in the USD being the currency required to buy Oil (Petrodollar) and sort of builds from there. Some searches should give the information pretty easily, but it's a rather complex topic to break down into a quick comment. Happy reading!

Edit: Apparently some people are too lazy to educate themselves beyond anything in the comment section. Here, perhaps clicking a link is within your grasp.

https://www.investopedia.com/articles/forex/072915/how-petro...

Not sure. Mortgage rates in the us are 3.5-4.5% (https://www.bankrate.com/new-jersey/mortgage-rates.aspx), while I can get a mortgage in the Netherlands for less than half of that (1.8-2.5%, https://www.abnamro.nl/nl/mobile/prive/hypotheken/actuele-hy...)

(I actually just got a mortgage and it was pretty painless: 1 week from 1st contact to contract)

I don't speak Dutch and Google translate doesn't work for that page for some reason, but I strongly believe you're comparing apples to oranges. What's the terms to get a 1.8% mortgage? How much loan to value (down payment) is required and how long is the loan term? Fixed or variable rate? What is the maximum debt to income ratio? Income requirements? Is that APR or APY?

I believe, again I don't speak Dutch, the longest loan term on that page is 10 years. If that's the case, then you'd have to compare it to a 10 year mortgage in the US, not a 30 year like you did.

Edit: I was holding my phone in a way I couldn't see the whole table. It appears to me that a 30 year mortgage with less than a 15% down payment is 4.40%.

Homes in NL, and EU in general are about 2-5x the price of an American home.

Compared to where? The median house value in LA is nearly 50% higher than in Amsterdam. SF and NY would be worse, as would many other areas. Sure, a house in the middle of nowhere or shit areas in the US is cheap, but any desirable area is expensive.

As somebody that lives in a "shit area", can you find a new adjective?

I love the Midwest, my money goes WAY further here working remote for a California company, not to mention all of the other benefits.

Not bashing LA/NY or those who choose to live there, but stop bashing us.

Slightly off topic, but since you work remote, how is internet connectivity there? Are you able to get decent speed for a reasonable price, or is it as bad as some say?

You live in the "middle of nowhere", not a "shit area" , one supposes.

Anyone who measures their commute in terms of hours because they can't afford to live closer to work lives in a "shit area."

Temecula is a shit/middle of nowhere area if your closest employment options are in LA.

Nobody said anything about the Midwest being shitty.

I said "in the middle of nowhere or shit areas". Since you're on a tech site, I assume you are familiar with how the word "or" works.

Meh, I live in beautiful New England, certainly not in the middle of nowhere, and housing here is affordable. I paid under $200,000 for a 1,600 square foot house and there's cheaper options if I were aiming for more affordable. Mu parents live 200 miles away and their 1400 sqft house is worth around $115,000.

Pretty much anywhere outside a few areas is affordable.

I believe the parenthetical saying "generally unsubstantiated reasons" is referring to the "employment" part, not the "housing" part. Equifax (and their competitors) like to sell their credit data to employers under the guise that those with good credit scores will be good employees, despite basically no data backing up this claim.

It's not necessarily "good credit scores == good employees" but maybe "here's a metric/collection of data we can use to hire The Right Kind Of Person" using whatever definition company management has quietly decided upon.

How is it misleading? Credit checks ARE often used by landlords and employers to vet potential renters/hires.

You can argue credit scores have value, but the parent’s observation is not misleading.

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