Credit Scores Can Run – and Ruin – Our Lives
thewalrus.ca
thewalrus.ca
https://www.investopedia.com/what-to-know-and-do-if-you-re-l...
It's known (quite infamously) to essentially keep unbanked populations unbanked. Long story short if you've had overdraft fees, bounced checks, etc opening new accounts at banks that utilize ChexSystems becomes nearly impossible.
On one hand there have clearly been people that have taken advantage of banks being siloed and abuse overdraft protection, etc to essentially get loans they can knowingly abscond with. Just move on to another bank. Repeat.
On the other hand, ChexSystems is much less well known and a bit more "shadowy". The old story of "I use my debit card, mismanage my activity against direct deposit/balance, get hit with overdraft, then overdraft again once the fee hits, etc and next thing I know I'm $500 in the hole because of a $2.50 debit at a convenience store and now I'm essentially banned from every bank."
In the case of the debit card example (or credit cards) banks could do what they used to and actually decline the charge. However they've clearly figured out it's much more profitable to allow the charge and just hit people with (often excessive) overdraft and over credit limit fees.
Like in theory, someone who closes an account $2.50 in the negative does very little damage to the bank directly. The $2.50 is a small fraction of the annual overhead of the bank account.
Yet these behaviors are highly correlative of unprofitable checking customers. The entire checking account model seems to be based on whales that return the bulk of the profits. If you sneeze wrong, your statistically 10x less likely to ever become that whale.
From a profit maximizing POV, it totally makes sense for banks to do this. But from a "banks are a basic utility" point of view, it doesn't seem to make sense.
Disclaimer: I work for a neobank (chime) which inverts this model and has none of these fees and does free overdraft
My ChexSystems entry wasn't removed until there was a lawsuit against the bank.
that's simply not true. the marginal cost of a checking account is on the order of a dollar. the breakeven on that is on the order of holding (and otherwise using) a deposit of a $100 for a month or two. banks are not losing money on the balance of their checking deposits in any conceivable way.
that's a just-so story told and retold uncritically to convince the gullible that fees are "necessary". they're not. they're pure profit, and borne of pure greed. no bank requires fees to function profitably.
we need to say no to these unsubstantiated, regressive fees, full stop.
That said, don’t let your views blind you to the truth. Unscrupulous actors will often drive an industry into predatory practices, it’s correctable but only when people understand the dynamics involved.
indeed.
those sunk costs don't matter in this context, which is why they were originally, and should continue to be, excluded. it's extraneous, obfuscating, and most damningly, apologetic.
Seems like a win win for everyone. Banks should probably be required to allow at least a minimal bank account even to people who aren't the best with their money.
Before the 2008 real estate collapse, this number was less than $100,000 per month.
During the recession, I noted it was going as high as $600,000 per month. At one location in Sunnyvale Ca.
It was the statement of revenue the credit union had - the overdraft section was a single line on the document... I am uncertain as to why they posted it, aside from a "transperency" for the credit union members...
A banker is nothing more than a fallible human. Why record in my inner monologue they’re to be seen as more than that?
Prior to open discourse online, public relations teams did a stellar job convincing people financiers are special. I’ve been in the room with people that attend Davos. They mock and ridicule the public as they decide who is worth what to their bottom line. They’re uniqueness is a hallucination.
Contemporary society is leveraging well understood propaganda techniques to take advantage of the same biological quirk religion stumbled upon by accident.
One person is one person. Not some figurative thought leader we must kowtow to.
I just pulled the BofA 2021 10K [1] and it shows $3.5bln in service charges, but $24bln in interest income.
To clarify, if you've had a checking account closed because of outstanding fees, and you never paid those fees, it will show up in ChexSystems.
This deserves scrutiny, e.g. for bad record keeping. But at its core, if you're regularly borrowing via overdrafts and bouncing checks, you're looking for a different banking product than the garden-variety checking account.
Or an account that does not permit cheque writing and will bounce a transaction instead of letting it overdraft.
Seems like the problem might be that this system will also prevent people who have a bad reputation in it from getting one of these accounts?
Could. In practice, plenty of banks fill this niche [1].
https://www.nafcu.org/compliance-blog/overdraft-protection-m...
If they make it really easy for you to opt in/a quick checkbox then they can make money. That said if someone is living so tight and wants a transaction declined if their account doesn’t have the funds, the financial should make that easy and obvious to do. Behaving otherwise is predatory.
Wait, so which one is it? Do banks want to exclude people with overdrafts because they're bad customers (for whatever reason) or do they want those people because they can rake in the overdraft fees?
With the proliferation of "free checking" without so much as a minimum balance in most cases banks have essentially created a selection system to continually marginalize customers that aren't profitable while selecting for customers that are.
From the standpoint of a business (which banks are) this is understandable. However as has been noted in other comments banks also serve a utility function and for the the type of customer that routinely doesn't have $2.50 in their checking account to trigger that overdraft in the first place several hundred dollars in fees might as well be a million. Of course they take off and the account gets closed. Now, because of a $2.50 loss to a bank, they're essentially excluded from the most basic functions of the financial system while people like us continue to benefit from free products, preferred interest rates, credit card points, etc.
Simultaneously, if due to some perfect storm of events (cash flow, mistakes, etc) if customers more similar to us somehow end up in this situation we'll pay the fees. The bank has a "valid" reason to boot the poor, they make a ton from the middle-ish class, and they stay in good favor with those of us that are more wealthy. They can't lose.
The extremely simple (but overall less profitable solution) is to just decline the charge.
My preferred status at banks is being subsidized by the poor and that doesn't sit right with me. I've tried credit unions but they're almost completely unable to meet my needs.
They want customers they can extract usurious and otherwise abusive fees from. They don't want the subset of those that will fight back against said abuse, which is what they use ChexSystems for. The latter also randomly hits some people from the (rest of the) former group, but not enough of them to impact the bank's finances.
Source: I used to work in retail.
From the perspective of people trapped in this system paying 10% in fees to cash a $300 check is outrageous - but at this point it's more or less what they have to do and that's "just the way things are".
Many credit unions can open a no-frills checking account as essentially a probationary account for you that you can convert into whatever you want after a few months of good history.
Source: I used to work at a credit union and we did this for people all the time.
This isn’t my domain, but just spitballing, we could use public funds to advertise credit unions in low income neighborhoods. Would credit unions want this, or would it lead to harmful consequences? Another way of asking this is, how come credit unions take these customers that banks won’t?
If USPS banking helps the unbanked by only 50 units of help instead of a maximum of 100, it’s still a 50 point improvement. If Morgan Stanley or JPMorgan can offer me a better banking deal than the post office could, that’s no reason to not have the post office offer banking.
I agree it should be open to everyone, but don’t agree that there can be a maximum of zero-point-zero difference in customer base vs other banks.
I'm not saying people can't change, but it's naive as hell to think that they will on a dime such as you suggest.
It's so easy to slip through the cracks in the system, so to speak. A sudden medical bill or car problems, for instance. I realized on my drive to work today that my car is the only thing keeping me from poverty. Luckily, I have tools in the back and would probably be able to fix it myself. :) Also, once you're in it, you're in it, and it's a strong cycle. You don't always have the luxury of things we often take for granted like having a nice outfit to wear, reliable transportation to an interview, and finally not even having a mailing address if you even end up getting a job offer.
It's like the places that offer a free shower and "nice" outfit (for an interview) to homeless people. Sometimes all it takes is that little boost to get (to be sure, the right person with the right attitude) someone back on their feet.
I've luckily never been in that situation, but I can empathize and understand how a completely ordinary person could quickly end up there.
Sadly, there are many who will not become more responsible with time. But there are also many who will, and I'm glad to have been able to play the smallest role in helping people who genuinely want a fresh start.
What I have a harder time believing, and not just in this situation but in a lot of conversations about the unbanked, is that these people will, after a lifetime of having problems with the banking system, suddenly "see the light" and start behaving in ways that are compatible with that same banking system.
This "fresh start" seems like the bad narrative, to me. I believe people seek it, and I believe they're hopeful about it, but I don't believe it's realistic to just assume. I definitely want to live in a world where people can choose to change, but suggesting that they actually will do that is, to me, not realistic.
I feel like a more effective approach would be to change how the banking system works, but I imagine that comes with a myriad of undesirable costs.
It seems likely to me that people who can't navigate the current banking system at a basic level would struggle with any banking system you introduce.
Or just any system in general.
In other words, the people involved usually are trustworthy in a generic "is it safe to bank with them", they're just not plugging into the system in a way that fits the defaults.
I'd almost argue that the banking system ought to be more flexible to maximize its compatibility with as many people as possible, and thus far hasn't because of the drive to maximize certainty and minimize all forms of risk.
I have no answers or real solid ideas for how to do this, but "it's all on them" doesn't quite feel right. These are (mostly) good people who will pay you back if you lend them money, and that should matter!
I think my comment got construed as "people can't change so it's all their fault" and I meant it more as, "financial systems should be willing to move closer to where these people are already at, and stop demanding these people make all the changes."
I also don't know how feasible that is, so... IDK! Just thinking via writing, I guess.
Or are you saying that a bank manager is actually hard to find in NYC?
I use citibank and they've recently announced that they're going back to the old ways of just declining the charge, and eliminating overdraft fees. Hopefully that's a trend that other banks are also following.
The reason that you have an option is actually not because of Chase's goodwill, but due to an Obama-era law that requires banks allow end users to turn off overdraft protection: https://www.cbsnews.com/news/obama-signs-sweeping-financial-...
There are some unfortunate and annoying loopholes. In particular, if you have a recurring, subscription based fee (instead of a typical debit card transaction) they can and still will charge you overdraft fees for that.
In the US people that do direct deposit are also treated differently by the banks. Both on the surface, i.e. you get better interest rates, and under the hood (fraud models adjusted).
Like...allow up to $500 to be overdrafted with interest being charged. If you reach $500 in overdraft, then decline any further charges.
I have to wonder what the incentive is for them to go back to that instead of easy profit
I prefer to have overdraft protection turned on. I usually keep very little money in my checking account and transfer any excess to other accounts. But a couple of times I screwed up the timing (my own fault). Paying my bank an overdraft fee was a lot better than bouncing a check.
It should be noted that overdraft services have been opt-in only since 2010:
https://www.consumerfinance.gov/rules-policy/regulations/100...
There was no recourse that I could find despite spending quite a bit of effort trying.
This was many years ago but remains a mystery as my credit was, and remains, great.
I had the overdraft fees problem with BofA too and recently some suit was settled/I got a $20 check.
JDBs suck but I did turn my stuff around eventually eg. 300s to 750s.
As far as the debit card issue goes- if you are bad at managing your accounts- you should always opt out of overdraft ability, an option that consumers have legally had for several years. If you opt out of electronic overdrafts, your bank cannot legally charge any overdraft fees for those transactions (they will probably decline the transaction... but if they do allow it, you can't be charged a fee if you have opted out). see https://www.consumerfinance.gov/about-us/blog/understanding-...
In my experience, many are simply doing it as a form of KYC (i.e. customer authentication) than an actual "is this a bad customer" check.
I have seen some really janky shit too. Every FI I have ever worked with ultimately decided to implement some "exception" process to be able to work with customers when there is some system outage or other unexpected results come back.
Additionally, every institution I worked with also provides some form of second-chance product offerings to customers who come back with a red-hot report. Obviously, these products do not offer overdraft or other line-of-credit features, but they are real checking accounts for all other purposes.
From my perspective, it's not an ideal system. But then again, I don't know that ideal is possible or desired. I think if Chex didn't exist, something else certainly would take its place. I've watched some other vendors exit the space recently, so I think they are now the last/biggest player.
1. Implement this product as specified, doing everything in my power to ensure rules are being followed throughout.
2. Quit my job in protest, bringing down my tiny startup company. 10 people are immediately out of work. Our client finds someone else to implement chex for them anyways.
I think we are coding ourselves into dystopia - where technology will not be serving us, but we will be serving it. We might be there already.
Which 'governance structure'/'rule creating structure' is going to ensure that the moral elements are considered? Or do they simple wave through the legislation big corporations' lobbyists have written? Will big corporations' so-called the 'ethics committees' give us the moral outlook we need? (I don't think so - they are about justifying the unjustifiable, it seems to me.) What is better - that 10 people you are out of work, or that - as you say - someone else will implement this?
These questions are very hard to answer. There are lots of coders who will do whatever-it-is without hesitation.
Ultimately, I guess we will have to do as we each see fit. What I say: morality is a question for the individual, so how do you judge yourself? That is one way to guide oneself through the mire.
Of course that won't happen because regulatory capture, but let's not wring our hands and pretend that this is a fundamentally difficult problem. It's not.
[1] https://www.courthousenews.com/high-court-wont-review-immuni...
But just like suing a large firm, when sending a $1000/hr corporate lawyer to small claims court, it makes more sense to just settle quickly.
Teaching budgeting in schools would be a good start.
Those with the financial ability will have little incentive to do so.
There needs to be a third party regulatory agency with real teeth where you don't need a pile of money to refute claims, just a little time for the regulatory agency to pressure them on your behalf. The courts aren't it although they probably should be.
The problem with our legal system is that in large part pointed out by GP, there's often a financial correlation in just how much you can utilize it which makes it ripe for exploitation by those with piles of capital laying around.
The CFPB could probably use sharper teeth
"Class actions" achieve very little; the only thing they do is make lawyers wealthier and if by some miracle the case succeeds, everyone else will get a 5$ coupon.
Real change requires changing laws by the democratic process and that can only happen when the population unites to hold the government strongly accountable.
I would argue that any other solution is a bandaid.
My sister, who works for 15$ an hour, has successfully sued two very large companies when they don't hold up their end of a contract.
Even if only 'some' of the people wronged sue, it will lead to better practices for everyone.
It's an arrangement called "contingency": https://www.legalmatch.com/law-library/article/contingency-l...
The downside is that a lawyer is likely not going to work with you unless they're sure they can get some decent money out of the case.
it’s a fictional character but that really sums up the type.
She also sued a large solar-panel installation company because their installed panels didn't work after several months of techs coming over. This was only a partial success as the company liquidated. They had apparently done the same thing to a few other people, and got sued into oblivion.
Lawsuits are a good thing for society sometimes.
In what world? c'mon.
Juries hate when companies do wrong by the little guy, because they are themselves the little guy.
Not every case drags on for years. People regularly sue, for example, insurance companies. Both parties kind of know where they stand, and judges prefer that parties find a settlement that works.
My mom is unemployed and medically unfit to work. She was given a credit card, which I found out about after a few years. I spent 2 years passively trying to sort the issue out with the bank, to no avail.
I finally went to the banking ombud earlier this year, and the bank wrote off her debt a few days after. I could have gone further and tried to get her "bad credit" from the bank expunged (there's a complaints process), but it disappears after 2 years, so I just left it to be.
Credit ratings bureaus enter into contractual agreements with both data suppliers and their customers and frequently deal with data that has a material impact on those who have no direct arrangement with the ratings bureau. I don't think it's unreasonable to expect a higher degree of data integrity and reliability in that case, and HN vs. a credit bureau is a terrible comparison.
Credit bureaus aren't covered by the CDA since they aren't online or interactive information providers.
Instead, the correct approach is to pay damages, and then, in a separate case, try to recover damages from that other party that you claim is at fault. If the other party is bankrupt or can't be found, you're gonna lose out.
Regulatory capture is a huge issue, it is difficult to solve, it is the real mother-issue of many other issues (like this one, you argue), and is fundamental to modern governance. Credit scoring is transitively a fundamentally difficult problem.
And remember even if you don't technically need those things, you might be much wealthier by the end of your life if you use those things, since both are effectively leveraged investment vehicles, allowing you to invest more and get more returns in good economic times.
You know who gets rich? People who do not spend their money.
And don't make it sound like "investment" is always a positive thing. many people are still paying for their "investments" from 2008.
Housing may be the exception, but you do not need a good credit score to get a loan for a house. Banks do not make these decisions on credit score alone.
https://www.ramseysolutions.com/real-estate/no-credit-score-...
What I am saying is that people should be spend less, save their money, and never going into any kind of debt, and ignore their credit score.
He also says that you should give 10% to the church while getting out of debt.
The reality is that, at least in the US, it is a requirement for nearly everyone to have a mortgage to purchase a house and even for those who can afford to purchase without a mortgage it makes more sense to get one anyway since mortgage interest is usually lower than the rate of returns for other investments you would be keeping the cash in, and you get tax benefits both by not realizing gains to liquidate investments to buy a house and the interest for the mortgage is tax deductible via the mortgage interest credit program.
Acting as if anyone is realistically out here buying houses in cash other than corporate investors / REITs, is silly. Even people on significant tech salaries are both better served and much more probably to have a mortgage even in LCOL areas.
Maybe there can be a system where dollar bills slowly peel out in front of me as I do my daily work?
Debt exists for a reason. It's more useful than cash.
The real fix is to only allow credit reporting systems to report on current debt, not any past debt or behaviour. (on top of the liability for mistakes you propose).
Not many people realise this.
Not speaking from personal experience, but I'm aware of a small number of cases where credit agencies, shops, and banks were sued for downgrading a credit score because of their own mistakes.
I suspect this would be less likely to succeed in the US. But it's interesting that technically a downgraded credit score - especially with proof of consequent harms and expenses - is very close to the legal definition of defamation.
First, even if you find a lawyer to take it on contingency, there are quite a few hard costs that are still out of pocket. Postage, document prep fees, travel expenses for depositions, expert witnesses, etc. It can literally be thousands of dollars.
Second, if your state does not allow for punitive damages for this type of violation, you need to prove damages. It is hard to quantify what the economic damage is of a credit denial or difficulty finding a lender is, and thus they will tie you and your lawyer’s time up with arguing this, even if they concede they erred.
Third, there is a serious time commitment to make in a lawsuit. Interviews, timely filings, certified mailings, depositions, etc. Easily tens of hours possibly hundreds.
Now, the type of person who can afford the time and expense of doing these things is generally also the type of person who can ignore a small hit to their credit score or a higher interest loan. Thus, these types of suits are not commonplace.
That said, I know someone who did this and was successful in getting a settlement.
-When there's been registered wage garnishment (by court) against you.
-When there's been registered a lien against your property.
-When you've entered a court-ordered debt payment program.
-When you've been registered as bankrupt.
And by law, these things have to be deleted when you've settled your debt. In any case, it's difficult to get those things by accident. Usually you're at the end of the process, and have been through civil court.
With that said - it should be mentioned that Norway is a INCREDIBLY creditor friendly country, as far as the law goes. If a creditor really want their money back, they can / will take you to court, and eventually get a garnishment on your wage or welfare money. Or property/vehicles/personal belongings lien if you don't have any income.
I like the system as it is. I really don't like the idea of constantly having to do things with respect to a credit score - and I'm not talking about gaming the system or being a deadbeat, but trying to maximize my credit score for the sake of keeping it high.
Just being a deadbeat will do exactly that. It takes 0 effort. Put your purchases on a credit card, and settle it in full every month.
If you don't need credit then taking on credit is an extra thing to manage. I personally like all my spending being on my debit card and coming out of my account so I have a single balance that reflects how much money I have. I don't want to deal with an extra company especially when their business model ultimately relies on trying to get me to miss a payment so they can charge fees/interest.
They make money on interest also, but they would rather have someone that spends and pays off a lot than someone that carries a modest balance.
In Europe and the UK, interchange is capped to a level that wouldn't support running a financial institution.
> They make money on interest also
Interest only gets charged a month after (at least on most UK credit cards), so if you're using it "the right way" and paying it off every month you will never incur any interest. It's good for you but ultimately proves that credit card providers rely on the (generally less financially-savvy) people who don't/can't use it "the right way" and incur interest or fees. That's honestly a pretty predatory business model I have no interest in supporting.
> My credit card company sends me a notification when a statement is ready and another friendly reminder a week before the bill is due.
True but why should I even statements and bills for spending what is my money in the first place? My argument is that you should only use a credit card when you actually need credit and not to merely game a broken system.
Does your bank not have a system showing you what transactions you did in a month? The credit card statement is the same thing, for a different account.
Credit cards are literally the dumbest way to borrow money, second only to payday loans. So you definitely shouldn't use them when you _actually need credit_.
But you should use them to build up your credit score, so you can get extremely cheap credit when you actually need it.
Not sure how it is where you are, but where I am the payment is automatically done every month from your bank account. There is 0 chance of missing a payment, as long as you have a sufficiently positive floating balance in your account. If someone do not, then I would question their suitability for a credit card in the first place.
Maybe in the US - in Europe where interchange is capped, credit card rewards aren't worth it. Not to mention, I like my privacy and don't want to deal with any rewards or offers programs anyway.
> but you have added fraud protection also.
In practice, all the fraud I've been victim of always fit within the card networks' dispute resolution rules. The only time I can think of this being necessary is airlines that go bust (where a card network dispute would technically succeed but fails because there's literally no money to claim back anymore).
> where I am the payment is automatically done every month from your bank account. There is 0 chance of missing a payment, as long as you have a sufficiently positive floating balance in your account. If someone do not, then I would question their suitability for a credit card in the first place.
See my other comment here: https://news.ycombinator.com/item?id=31504046
>In practice, all the fraud I've been victim of always fit within the card networks' dispute resolution rules
I think there's an element of "fraud protection" that you're missing. If your debit card gets breached and someone racks up $2000 worth of charges on it, the $2000 is immediately gone from your bank account. If rent/bills are due soon, that might be bad. On the other hand if you have a credit card, you have at least 3-4 weeks since the bill is issued before you have to pay, which means 3-4 extra weeks to get it resolved/refunded without having it affect your finances.
Does the dispute process have all disputed money be instantly returned to the account? With a credit card, you can simply turn off the auto payment system, and simply not pay the fraudulent part, and you still have your money in the bank account. With a debit card, in the US the banks typically have 10 business days to determine if there was fraud and give your money back. (If the investigation takes longer they return the money on the tenth business day pending the results of the investigation, and if they determine it was not fraud they will take the money back again.)
And in the US many people life paycheck to paycheck with effectively zero savings. If their account is zeroed out due to fraud, Things can get expensive quick.
For example, your rent payment is probably too large to be covered by banks overdraft protection, so you will likely get hit with three bounced check fees. of at least $25. One from you bank from the first attempt. Then a later re-presentment attempt will also fail, and you will get a second fee from your bank. Finally, you will get a bounced check fee from your landlord. Of course since your payment did not go through, you will likely end up with a late fee. etc.
For other bills they could be small enough that you only get hit with overdraft fees, and not the rest. But if not, then things can snowball VERY quickly. And There could be other consequential damages like losses from being unable to get certain items while they are on sale, or even things like the stress of all of this preventing you from closing a sales deal, meaning you lose out on a substantial commission, etc.
And while you can typically get the bank imposed fees waived due to the fraud, as long as they can determine that you would not have suffered those fees if the money had been there, the bank won't always cover all the the incidental and consequential damages. (The terms of service always exclude those).
Not if you have an American Express card. Interchange is capped only if there's more than 3 parties to the transaction, which is not the case on AmEx.
My bank provides fraud protection for my debit card. A card for my account got skimmed and was used to withdraw cash from an ATM. Got my money back with a single phone call to report the fraudulent activity.
This is a genuine question; I know that other countries do things differently. Is that not an option where you are?
If you’re not using a credit card, you’re:
- Adopting significant risk (debit card protections are not as strong as credit card protections)
- Failing to establish a credit history
- Giving away a significant amount of money.
Credit card transaction fees are included in all prices.
I use a card that gives me 2% cash back on all purchases — effectively, most or all of the transaction fee.
I fail to understand how you are giving away 'significant' money by spending from your own account? Are you referring to being able to earn interest on savings for the month before you have to settle the credit line?
And as the other commenter's reply says, all my credit cards pay me cash back or a points system which is redeemable for things with high cash value. There's a real quantifiable cost to not using them.
It always shows as pending in the morning and clears that evening.
I can also make a payment and it will update my CC limit the same day if needed.
You depend on your bank for this type of stuff? Isn't that basically begging for vendor lock-in? It makes far more sense to have a vendor-agnostic solution (eg. mint or personal spreadsheet), so your analytics aren't at the whims of your bank.
A credit card would break that and introduce unnecessarily complexity including another company that I'd rather not have to deal with (also, I'm not aware of any modern credit card providers that would give me a decent experience).
If I look at my recent expenses in my banking app, I can see that I got a coffee (food&beverage), bought fuel (transport) and paid freight cost on a case of wine from my frequent flyer miles rewards program (incorrectly classed as travel).
It's not 100% accurate but gives a good enough overview in the app week by week, and I sit down quarterly to look at things properly in a spreadsheet.
Here in the US it is common for banks to both provide traditional banking services and credit cards, and when you open your banking app, both accounts are together.
I don't give out my debit card and I only use it at trusted ATMs.
We effectively have a form of wage slavery by law. If a person has debts that are unpayably big and is not (or no longer) eligible for the once-each-lifetime-only "personal bankruptcy", where one signs a contract to pay all property and incomes for five years towards one's debts before the remaining is erased, one is on the hook for the remaining debt for the rest of one's life.
No recourse. Economic damage judgements in court do not qualify even for the five-year 100% garnishment contract. Someone impacted by this has no incentive to work ever again, because everything they earn above the survival minimum will be garnished. I'd hazard a guess that most of them end up on welfare.
So it's not all good, unfortunately. I mentioned social unity punishments in our culture in a different thread the other day; this is another example of that.
source for bankruptcy being "once-each-lifetime-only"? A quick search says that's false: https://www.findlaw.com/bankruptcy/after-bankruptcy/how-ofte...
Over here, we can't really just "declare bankruptcy", it's a very lengthy process - which takes years. It's more like a court ordered program where the debtor and creditor agrees that the debtor is going to pay as much as possible towards the debt owed, for the next N years, and after that - all debt is erased. You're allowed to keep just enough of your salary to cover the most basic living expenses, everything else goes to the creditor.
This also means not being credit worthy, which in turn could mean no cellphone plan, no insurance, no mortgage, no auto loans, no consumer loans, etc. Everything you buy, you have to buy with cash up-front.
From start to finish, all that could take 5-10 years. And before you even sign a contract where you and the creditor agrees upon such a plan, the debt collection agencies are probably hounding you down on a daily basis, making whatever debt you had to begin with N times more expensive.
The good news is that when you've held up your end of the agreement, it's gone. But you only get once chance. If you - for whatever reason, any reason at all - end up in the same situation, you're practically a debt slave. Which could mean wage/welfare garnishments for the rest of your life. This is especially true if you have multiple debt collection agencies bogging down individual debts with added and compounding fees.
But to be fair, this is not normal. Very few end up being two-time losers - but sadly it could be entrepreneurs and small business owners, if they haven't structured their companies the right way.
Can you inherit debt in Norway? You can in Germany. You don't in the USA.
Can you as a Norwegian declare bankruptcy in the UK or is that off the table now that they're out of the EU?
You can, but it would be voluntary. Inheritors can choose all assets and all debts, or nothing.
Unsure about the bankruptcy tourism idea. I'm pretty sure it would take many years. Moving countries for tax purposes, for instance, takes five years for all obligations to clear.
> TransUnion, one of Canada’s two main credit bureaus, had reported her as deceased.
We also moved out of the stone age and faxes practically don't exist and all certificates are digital:
> Two years of faxing in detailed documents—including Dave’s death certificate
The alternative to algorithmic scoring is often worse: someone making a subjective judgement call. Which, historically, is fraught with discrimination.
Edit: I stand corrected. Thanks, I understand now.
They'll likely close your account for inactivity after a few years, and the account stays on the credit report for a decade after it's closed.
This is not a very smart way to do things. You'd be much better off getting a credit card with no fees and rewards points, buying everything with that, and then paying it off every month. You'll have stronger legal protections on your purchases, and you'll earn reward money without paying any extra. You can even pay off your bill with the reward points. And as a bonus you'll build up your credit score, which can affect you in lots of ways unrelated to loan rates.
But I hate it. It feels insane to me that we as citizens don't have more regulatory control over credit systems. I envy you, but I also know that what you are doing is not practical for me.
No. Rewards are funded by merchants (interchange) and by people who actually pay the 19.9% annual interest.
Not exactly. There are MANY credit scores in the US and several credit agencies. Different score calculations occur for different purposes, mortgages, credit card, automobile, and so forth. Plus there are different versions of each credit score's model. Each credit reporting agency keeps a separate credit file per person. Each person's credit file contains credit histories from various creditors. Not all creditors report to all credit reporting agencies. Not all credit reporting agencies receive the same information from a creditor, even when receiving information. The score for a particular person may differ between different credit reporting agencies, credit scoring models, or any of various other factors.
So if I paid off my debt on time, and you made your creditor fight tooth and nail for five years and get a court judgment to get your debt paid (but it is paid now), future lenders would have to treat us the same?
I moved abroad and forgot about a $30 dollar balance with AT&T which brought my FICO score to 600. One 30 dollar bill means I can no longer qualify for a mortgage or a car payment or anything.
https://www.experian.com/disputes/main.html
https://www.transunion.com/credit-disputes/dispute-your-cred...
If they refuse then you can just refuse to pay until they relent. Their only alternative is to take you to court or sell to the next collection agency down the line. Creditors and collection agencies won’t take that action except as an absolute last resort.
My personal experience has been that it is 100% true that, if paid in full, the item is removed.
Better?
you could cause six figure loses to a bank by short selling your home and still have workable credit within 2 years
I need remote work and have some background in Instructional Design. I'm FAR more valuable now than I was 3 years ago. Odd how that works.
I just no longer rely on credit or use credit cards anymore. I buy everything with cash.
Funny enough my bank is constantly calling me that they can lend me money.
Our modern Credit/interest/rent system is parasitic at best. In some cultures, it is deemed immoral and outright banned. However I don't know what the alternative is. Who would lend money without any expectation of return? Who would buy bonds if they cannot sell it for a higher price?
It doesn't necessarily feel great... but remember that you're literally just a number that they couldn't care less about.
1. Relieve the psychological / emotional stress of debt collectors hounding you by redirecting that to them.
2. Offering to settle debts. Realize, though that "Paid in full" and "Settled in full" are different statuses to a CRA. And both have an entirely negligible impact on improving your credit score - the damage is done when the negative tradeline is reported. HOWEVER, for mortgages, there's some merit in resolving this. "Yes, it got to that point, but I did take care of it" is better that "Yes, it got to that point, and then I continued to ignore it."
3. How do these agencies also "improve" your credit? They dispute every negative tradeline, regardless of accuracy. If the tradeline isn't verified (because smaller/more manual agencies don't have the time/inclination, especially if they've got their money now), it is removed, like it never happened. If it IS verified? They dispute it again. And again. In the hope that at some point the creditor will fail to meet the verification requirements. Nothing magic.
I imagine that these last bill things end up dinging a lot of people's credit. Luckily I've paid them when I find out about them and my credit bounces back once the payment in full is reported.
Lenders want to lend money to people who will pay it back as agreed. Lenders want to avoid lending money to people who will not (or want to charge an amount sufficient to cover their increased risk and costs). Borrowers want to borrow money at the cheapest possible terms. A system that correctly predicts who is likely to pay back borrowed funds as agreed serves both borrowers and lenders. That means it's unlikely that it should be made outright illegal.
Regulations around data quality, challenging suspect data, removing erroneous data, how long correct-but-negative items can stay on the report, etc. are entirely appropriate of course.
Such a system can't be built without being unfairly biased against some people who don't fit a certain mold, and thus it should be illegal.
Most of Europe has a much simpler system: Your ability to obtain credit is based on the past several years of income, with a penalty for instances over the past ~7 years in which you didn't pay back debts. That's it; no predictive modeling or scoring or other nonsense; everyone has an even chance at credit.
Okay, and using these inputs, what function is applied to determine whether or not to grant the loan? How does that system differ from a "credit scoring" system, apart from that your perceived ability to repay isn't explicitly mapped to a single variable?
I haven’t been denied in a long time, but my recollection was the refusal was from the lender and included “we may have used information from <reporting agencies>; here’s how you can get a free copy of the information in your file…”
It is only a proof of income, outstanding debts (that you are required to reveal), and the hopefully lack of past non-payments that count. You can't "build your" score buy using a bunch of credit cards and paying every month.
I live in Europe, and do not have a credit-card (only debit) have no need for credit, since I do not spend money that I do not have.
If I was in the US, I would probably have a credit card to "build my credit".
It is like if I asked my neighbor to lend me money every month and pay them back a second later to build their trust. It is just a stupid game, with no real meaning.
In France at least, contract workers and entrepreneurs have poor access to mortgages compared to people who have a long term contract (CDI).
Instead, I haven't really lived in the US besides a short stint as a student there a long time ago. But despite that, I have credit cards in the US and have a good enough credit score to be able to get a mortgage.
I actually prefer the credit score in the US, it's relatively easy to manage, there's quick feedback as to how well you are doing (much less opaque than what's there in Europe) and it's more flexible for people not fitting the mold.
Where is the difference between this and any other time where a choice to offer a contract or not occurs? If you are hiring, no matter your interview process, you are looking for a certain mold and good workers who don't fit that mold will be discriminated against. When renting, same thing. When picking a contractor to do a job, same thing.
>Your ability to obtain credit is based on the past several years of income, with a penalty for instances over the past ~7 years in which you didn't pay back debts.
Which is still a certain mold predicting future performance based on past behavior. What about someone who has had poor income and many poor payments but who has just turned their life around and will have great income and be payable and willing to pay off any future debts. You are still discriminating against them because most people with a similar history won't have a similar positive outcome.
The "class action" should be a public imposition against such scoring simply saying in Democracy People rules, we rule that no such things is allowed, you are a minority who can obey or being crushed. But since we are not in Democracies, they are just corporato-dictatorships dressed as formal, not substantial, democracies and most are not Citizens but just subjects...
Like if there is some entity that just gets what they want it doesn't really matter that you feel controlled, because you are.
Many of the places where people think they don't have a "credit score" are just places where credit worthiness is quantified differently, or local regulations don't have the same transparency requirements that exist in the US.
https://en.wikipedia.org/wiki/Credit_bureau#List_of_credit_r...
"Social credit" is an entirely different thing.
If I never borrow money and survive on my own terms my score should be perfect. Instead I'm marked down for never risking getting in to debt.
Indeed, these glitches have the potential to ruin people's lives. Reminds me of Kafka's "The Trial".
Year over year, your freedoms and finances will slowly dwindle. A law is passed that destroys your privacy... local/state/federal taxes are increased... the cost of groceries and housing keeps creeping up... but your employer need not cut you any slack, because you're just a number in one of their spreadsheets, serving a means to an end.
There are no laws that dictate companies must pay a livable wage; instead we are brutalized and battered by the free market, with nothing left but a steadily decreasing quality of life.
These are, of course, not covered by the Fair Credit Reporting Act, so nobody is required to tell you what's on your report or allow you to dispute it, nor do they even have to tell you they used the report in denying you an apartment.
In the UK we have credit scores, but they're pretty irrelevant. What matters here is being able to show who you are (a matter of looking you up on things like voter lists) and you never having been taken to court for your debts (County Court Judgements).
In fairness we also have a lot less unsecured debt and a much more punitive bankruptcy system...
I'm guessing the biggest reason is your latter point -- it is very easy to get a lot of credit in the US and relatively easy to have it forgiven.
Open a lending institution that will lend money to anyone with no credit checking? Hope that you don’t get adverse selected out of business, but if you don’t and can compete without it, demand for credit scoring will plummet.
Or petition your representatives to make this particular type of service illegal.
This seems unlikely to succeed. You'd wind up having to give the same rates to everyone, because you have no real way to assess risk individually. As such, you wouldn't be able to compete on rates for people with good credit.
Accepting, handling, counting, accounting for, and securing cash (against insider and outsider threats) is not without cost either.
Any non-trivial credit such as your mortgage, car loans and student loans are registered centrally at an institute called the BKR. When you regularly fail to make payments on these loans, you may be marked with a negative rating.
So it's fairly binary information: good or bad.
Over here, day to day payments are done with debit, so no detailed "small credit" history is recorded at all.
In my case, this BKR institute has a single entry, my mortgage, and soon none at all. So I'd then have no registered credit at all, and thus also no score.
...which is celebrated by creditors. A complete lack of data is interpreted as you being the most financially sound person possible. This high trust culture doesn't come out of nowhere. Culturally, payment discipline overall is very solid as we have somewhat of an anti-loan culture (don't live beyond your means). Further, you're not going to get away with defaulting on loans, there's no mercy for it here.
Not sure exactly what you mean by small credit, but your daily purchases or spending is not on your credit report.
It’s largely similar to what you describe but the information, good and bad is kept for 7 years.
Using credit to buy things you can't afford is a bad idea, but using credit to better leverage your money is very useful. Especially with increasing inflation, having debt that you have no trouble servicing isn't a bad thing.
In fact, I find it strange and shortsided, because the people without credit are generally going to be the people who have less of a hard time fulfilling their payment obligations.
Other than that, it has never affected my life. You can get a manually underwritten mortgage still today.
There is always someone else who wants your money more.
Even if you manage to keep it spotless, credit scores still give a lot of weight to "having access to a lot of credit, and not using it", or "having a mortgage that you've been paying consistently for years", both of which mostly require you to already have good credit to get.
- There is almost no easy way to fix bad problems. The fixes require huge bureaucracy that only highly motivated people can solve
- We like to pretend it works. It does, except for 5% of a population and it really sucks if you aren't in the 95%. People in the 95% dont realize how bad it is for the 5%. By the 5% i'm talking about legitimately credit-worthy individuals being unfairly denied by the system (not un-credit-worthy legitimately denied.)
- We like to pretend it is private market driven, but the private orgs driving it have almost government-level power to control your life by cutting off funding
> The US system is also authoritarian, except
>- There is almost no easy way to fix bad problems
...as opposed to the chinese system? The whole aim of the social system seems to be to allow punishing people for infractions without having to go through the messy process of criminal prosecution.
There's SCHUFA here in Germany
We trade one for another; there's no social caste, royalty, or nobility here. Your worth as a human being is determined entirely by the sum of your assets.
I had hoped with the implementation of GDPR I would be able to write to these con artists and ask them to remove my information but alas apparently my personal right to object does not automatically mean they have to stop processing my data see more here: https://help.equifax.co.uk/EquifaxOnlineHelp/s/article/Howdo...
The whole arrangement is a total scam.
Free yourself from a broken system and experience the world that doesn't treat you like a wage slave.