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Comment by Aardwolf | Hacker News Reader

Dumb question about the "may have an impact on your credit score" part:

In European countries, as far as I know (maybe UK is an exception) this concept of credit score doesn't exist. Even if there might be some hidden scores, nothing prevents you e.g. from getting internet, phone, place to rent due to not having a "credit history" when moving to a different country so if there's anything it's unnoticeable for that.

If you want a mortgage, they do look at things like your income, wealth, and there exist official ways to register someone is behind on debt, and get a statement you're not.

But so the question is: why is this such a fine grained numbers game in the US? The goal is the same as in Europe I assume: know if who you give a loan to can pay it back. Isn't a system where this is based on a score that even gets affected by a bank closing accounts for their own reason counter-productive for that?

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It's just a broken, entrenched system.

I personally know a CEO who moved to SV, was worth something like $100m+, and the bank wouldn't give him a home loan because he didn't have the right credit score yet.

He was literally building his credit with an Amex using their global transfer system.

On the other hand, FICO scores are so easy to game that once you get a couple of cards going, you can leverage those to get more cards, etc, etc and optimise your score that way.

While FICO is highly problematic in a number of ways, I think many people miss the upsides of it. In a system like you describe, there are only negative marks against a creditor.

Take this example scenario:

  - You move from location A to location B
  - Your internet bill is not cancelled correctly and they send you a $50 bill
  - You never get the bill and it goes to collections
  - This leads to a negative mark on your credit

In your system, you are the sum of your mistakes. With the US system, the negative mark is offset by the positive actions you are taking at the same time. Does it hurt your credit? Yes. Is it nearly as damaging as the negative only system? No.

Not really. In Denmark the offical “bad payor” register (RKI) is not something you easily and without noticing is registered into. And you can get de-registered simply by paying off you debt as far as I know.

So, besides that, banks look at income, loans, mortage vs house valuation especially. At least, as far as we consumers know.

That means, if I want a mortage loan for a house, actual and relevant factors weigh in on what I can get approved for. To me, thats way better than some scoringsystem where my score depends on sp many different actual and historical things.

Your example wouldn't have happened though, at least in Sweden. Registration into the bad lender registry doesn't happen automatically, and the government knows your address after you moved, so they would be able to inform you what's going on.

There are benefits and drawbacks of course. I ended up in the registry for not paying my taxes on time (I had challenged a tax authority decision and thought I did need to pay it while the investigation was ongoing, so it was my fault). For this I was on the registry for 3 years and it was seriously annoying, similar to having a bad credit score in the US I can imagine. There was nothing one can done about this other than waiting for you to be removed from the registry after 3 years.

The benefit is that that the system is completely transparent, and is not based on random metrics such as an account being closed or whether or not you have any loans at all (the last part is bizarre to me, you should be rewarded for being debt free, not punished).

Not sure which "concept of credit score" you might be referring to, but in Germany, there's Schufa (among others). They calculate a credit score using secret formulas.

So I'd say it's pretty much the same.

I don't think it is, at least it always seemed to me that if you take up no credit, Schufa won't be a problem. While when I moved to the US, I had to open credit lines to build "history".

Then again, I don't know what fully goes on with Schufa, so maybe it just wasn't a problem for me. But then what would be the problem without "history"? Had I built a house or bought an apartment, I am very sure they'd primarily look at your income. And the one time I had took a "Bildungskredit" because I was financing my university time myself, my non-existing Schufa records did not come up either.

Correct me if I'm wrong, but it much rather seemed like a "bad payer" register to me (as a cousin comment just called it for Denmark).

Hm, yes, missing history isn't as bad, I guess that's true. However, Schufa isn't exclusively about credit. It records all kinds of information like your address, your phone/mobile plans, all your bank accounts. Credit requests (where you get a quote and then not follow through), too.

It's definitely not a bad payer register.

Finland is currently considering a "positive credit registry", since our currently credit assessment is based on being a delinquent or not.

>A positive credit information registry would have many benefits to both consumers, creditors and the entire financial market says the study by Pellervo Economic Research and University of Vaasa. It would decrease the risk of overborrowing, improve consumer's status on the market and increase the stability of the financial markets. In addition it would improve the consumers' ability to control their own financial situation.

In Sweden companies often do a credit check before allowing you to to buy on invoice or subscribe to services. The credit check will fail to go through if your income lies below a certain limit (this information is gathered from the tax office) or if you have defaulted on a bill in the past leading to the state debt collector ("Kronofogden" [1], translates to "The Crown Bailiff") becoming involved. This leaves a mark on your record ("betalningsanmärkning") which stays there for 3 years after the debt has been paid.

[1] https://en.wikipedia.org/wiki/Swedish_Enforcement_Authority

There are two aspects of 'your' credit score that could be effected by the shutting down exisiting credit lines. The credit score system is certainly not perfect, but I don't believe these are nonsensical metrics.

1). Average age of credit - If this is your oldest dated credit it could have a sizeable impact on the average. 2). Credit utilization - The total amount of credit extended to you divided by the total amount used. $5000 across $50,000 of extended credit (3 credit cards, auto loan, line of credit) is 10% utilization. If WF closes your $25,000 your utilization just doubled without any change on your side (plus a potential ding for average age).

Not that I think the credit-reporting system in the US is sane or fair, but one of the factors that may go into one's score is the amount of credit you have available to you (i.e. a reflection of how much other lenders have already decided to trust you). So if you have a bunch of credit cards with low balances? That looks good. You can only get approved for a couple, and you push them to the limit constantly? That looks bad. An account closes, for whatever reason? Affects that metric. I wouldn't expect it to be significant, but people who monitor credit closely might notice.

The UK also has credit scores, although they’re not the sole factor in acceptance for credit. Experian, Equifax and Transunion all have their own individual scoring systems with different scales - I’m not aware of a standard like Fico here.

As for shutting down accounts affecting scores - most scores factor in credit utilisation %. Maxing out a credit card can indicate that a borrower is having problems making repayments, so keeping utilisation under around 30% is helpful for a good score. Closing old accounts reduces access to credit, so the utilisation % increases.

This forces people to do things they may not be interested in otherwise, such as keeping multiple credit cards, etc. on which banks make money.

Give me a break. Even if the credit scoring system incentivizes you to keep accounts open, it doesn’t incentivize you to use them. In fact, having too large a balance on your credit cards (i.e. too much usage) is a negative factor in your credit rating.

It was very weird for me when I moved to the US as an adult, and had to explicitly open "credit lines" and actively use them to build "history". In Germany, using "credit" for anything less than a house or a new car seemed rather heavily discouraged to me.

It was weird for me when I traveled to Germany and had to pay for almost everything in cash because the country doesn’t like electronic payments. What’s your point?

My point was that just keeping negative records, instead of forcing people to open credit lines to build history, seems to work out very well in other parts of the world. And so there may be a point to the assertion that this system of having to build "history" is to incentivize credit usage.

I don't see what electronic payment usage has to do with it. There is electronic payment usage in Germany, but it's almost entirely debit cards. The reluctance to use electronic payment at all has nothing to do with whether it's one or the other.

Sorry if this was not clear, but I did not say you have to use credit cards.

You said this was an incentive for consumers to “[keep] multiple credit cards, etc. on which banks make money”.

Banks don’t make money off credit cards which are not being used.

Person who grew up in Germany and moved to the US, here.

It's also worth noting, that credit cards aren't too much of a concept in Europe at all. They do exist, but I remember them mostly being used for traveling and online payment (e.g. when the seller is international and PayPal isn't an option). I recall that before the latter was a thing, it was even rarer. My father (who traveled a lot for his job) had one, and it was "interesting".[1]

My parents also strictly taught me that "taking a credit is a very bad thing, you are spending money you don't have", so credit cards had a kind of "dangerous" aura just by their name. As an adult, I of course have no trouble using credit cards here in the US (I just pay them in full all the time), and I can easily calculate that it usually makes more sense to buy houses and sometimes even cars with a low interest credit, but I am glad to have received that lesson...

[1] Also taxis. Taxis were special there. Back then mobile data networks weren't a thing, so electronic payment options weren't really available for Taxis. However, credit cards had this "ratchet" thing that was entirely mechanic. Couple that with the fact that Taxis spent (and still spend) a lot of time at airports, it comes back to the "traveling" use case, but this time inbound. I have no proof, but I highly suspect that most local people paid Taxis in cash, as was (and maybe still is) much more common in Germany in general anyway.

> credit cards aren't too much of a concept in Europe at all.

Yeah, no, that’s just a Germany thing.

They are not much of a thing in France either.

I don't particularly recall it being a thing in France and Italy either, both countries I have strong connections to, although admittedly I have never lived there as an adult, so I may have missed that aspect entirely.

It would maybe help if you could elaborate in what European countries you say credit cards are usually used for every day payments?

And it's a nice ever-perpetuating story from two decades ago.

Today we have several mostly-online banks (the largest is DKB with 4.6 million customers) who issue credit cards with which you can get money at the ATM without a fee. If you're using the "usual" EC card, you're paying lots of fees.

Consequently, many people in Germany today carry a credit card nowadays, and they use it for paying the groceries, as well.

You can pay with credit cards in every supermarket, in every gas station, in almost every restaurant.

Well I did move away a while ago. Those credit cards, are they actually credit cards, as in they grant you credit that you pay off later? Because I remember a friend visiting me, and his "credit card" was actually a debit card, just using the Visa/Mastercard/whatever system. He did not know the difference until I explained it to him ("why did you think it's called a 'credit card'"...)

Yes, you've got a credit line and pay off the balance at the end of the month.

Anecdotally: in running a B2B SaaS for >10 years, there are two rough generalizations I learned about Europeans (in Europe):

1) They are not in the office in August.

2) They are much less likely to have access to a credit card, even if they run a small business. (European customers were much more likely to pay via PayPal.)

>European customers were much more likely to pay via PayPal.

I have two credit cards and I often pay with PayPal because I just don't want to enter my card details out of sheer laziness.

PayPal also works well when the merchant doesn’t directly accept Amex

#1 - Yes, I have used it that way before.

#2 - However, our business accepted AmEx from the beginning.

#3 - Europeans are also anecdotally much more unlikely to carry Amex than even other cards.

#4 - My generalization comes from directly communicating with our European customers over 10 years. Their concern was not "I would like to pay with $CARD_WE_DONT_SUPPORT" but instead "I do not have access to any credit card."

Same in Estonia. You use a credit card anywhere locally _only_ when you don't have actual money.

Somebody using their credit card once per month for local purchases? It's a sign that they are rather bad at managing their income and that's a negative sign for banks if you want to get a loan later on..

In Germany there is something called Schufa. https://www.schufa.de/en/. Used almost everywhere by everyone. Want to rent? Buy a car? Buy a house? Have your Schufa report - score between 0 to 1000.

Yes, but is it a bad thing if your Schufa record is non-existent? My impression was that no, that counts as a "clean record". In the US, you need to have "positive history", i.e. lots of credit usage without problems.

As far I as remember, no record means “positive history”, indeed.

Debt is inherently tied to American moral values. It has a use so it has never gone away, despite it causing damage.

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