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I know from experience that both Norway and Sweden have credit score systems. It’s an expedient way to formalize a single important aspect of reputation, so that people who are careful to service their debts can borrow on favorable terms.

It’s the least painful way of enforcing some personal responsibility for debts taken for personal benefit, and because medical treatment is socialized and the government looks after the poor, nobody should ever be faced with the need to borrow to continue living.

Credit scores in the US are much more sinister, in that respect, representing a measure of not only fastidiousness but also desperation.

The alternatives are:

1. Socialize the risk by charging much higher interest rates.

2. Use an informal "shadow credit score" that is based on things like physical appearance, personal connections, and illegal blacklists.

3. Stop lending to private individuals without a security covering essentially the full loan amount.

All of these seem much worse than the existing credit scoring systems.

I'm not sure what a better system than credit scores would be. How else should a bank determine if you are likely to repay a loan?

To answer your other question about how it's determined, it does not measure how much banks make off you. It measures how well you pay off debts. So taking out debts (or using a lien of credit) and paying it back shows that. As does making regular mortgage payments. You can have good credit in the US while paying no extra money to any banks, with interest free car financing and no-fee credit cards you can pay off in full.

>How else should a bank determine if you are likely to repay a loan?

Not this way, or not at all for all anyone else should care. Banks are paid interest for taking a risk, so let them take the risk. No other country on Earth has credit scores like the US, and they don't want them because credit scores are disgusting, inhumane.

That's complete horseshit. Easily disproven with a single counter example: the UK has credit scores.

The UK has credit reports, which is a document containing all of your lending history (and previous addresses, current accounts, etc.). Credit scores are commonly thought of as an add-on by consumer credit reference agencies to try and sell people a monthly subscription: they are generally regarded as useless.

Canada has the exact same system (with the exact same companies) as the US.

They're basically just presenting the same information in a different way. Lenders will still do a hard pull on the credit report as they do in the US.

https://en.m.wikipedia.org/wiki/Credit_score

Sorry, what you said is false and easy to verify.

But people have varying levels of risk and the credit score is how they categorize that risk. If you force banks to not look at past history (all a credit score is), sure, they will accept that risk but be prepared to pay 30% interest on a car loan.

There are plenty of creditors today who have no or poor credit, and they can still get loans (especially for cars) it’s just at absurd interest rates. Eliminating credit scores will just put everyone in the same (very high) bracket.

If you want to actually fix the system, substantially raise the barrier to non-revolving accounts reporting debts and make a reasonable process to dispute that debt.

Credit agencies should be more mediators than data-sellers.

> Not this way, or not at all for all anyone else should care

Well, clearly they have to have some way to tell. Or would I be able to borrow hundreds of billions to buy TSLA because I think it's undervalued in your example.

Clearly, banks assess how much to loan at what interest rate, and those numbers are different for different people. How else do you think they should make their decisions?

"but isn’t it sort of weird that it is legal to score your citizens like that in a democracy?"

No, why? How else do you ascertain risk?

A democracy =/= banking and financial products. Sure there is a central bank, but that is not related to this conversation. The credit agencies are not government facilities. Credit agencies are regulated by the government.

Without getting into any real details about US credit scores, how would you determine risk on say giving someone a car loan? You’d want to know that the person has 5 previous repossessions right? A credit score tells you that. Without some type of score (in the abstract sense), you’d have no way of determining risk.

The fact that banks would like this to better determine risk, doesn’t mean a society has to allow for it. Banks could also just accept the higher risk, and work with that. For example by asking higher interest or insuring the debt. There are solutions that don’t require big invasion of privacy.

Asking who to pay higher interest? Everyone? Until one bank says “you can pay less if you tell us about your past loan history”. Which 99% of people who pay their loans back are going to take.

Opt-in telemetry is fine. :)

You can get a payday loan, no credit check needed.

This is all true. I don’t think I’d like paying more for debt because others routinely default on theirs. I’ve always been judicious with the debt I take on, and that has benefited me by allowing me to access the cheapest credit and no-deposit utilities.

All that being said, I do appreciate that centralized scoring can go too far. And I don’t have the answer for where a line should be drawn. Or how far back in time the scoring should assess. (BTW, it’s generally 7-10 years I believe, which is pretty short)

How is auto insurance handled where you are? How would you feel about no-fault insurance rates where every driver pays the same amount regardless of risk?

I'm not sure I'd call 7-10 years "pretty short". That's roughly 10% of one's entire life.

I don't want to pay 10% interest rates so no thank you. Do you want to pay 10% interest on your house or car?

How much would that impact interest rates? I'm curious since even a fraction of a percent can have a big impact on the economy

In my country it's fairly easy; you can not default on debts, they are for life.

If you don't pay, debt goes to a specific government ministry that picks you clean (property, assets, accounts) until debt is paid off, leaving you with nothing more than enough to eat and pay rent every month (for a tiny apt).

Every time you try to take a loan or buy something on a payment plan, the seller will check with the ministry if you are registered there. You can't get anything unless paid upfront in full, no cellphone subscription, no credit cards.

Once debts are paid off, you are still in the registry for 3 years (unless you rack up more debts).

That sounds like a credit score of sorts.

I think the thing that most of us can't wrap their head around is the "building a credit score" part, not the credit score itself.

As in, if I never take a credit and save all my money, I don't have a good credit score, but if I spend 95% of my net income on weird stuff, but do pay my credit card bills on time I suddenly have a good credit score? As exemplified by advice I often read to route as many recurring payments as possible (including rent) through a credit card (and paying on time, ofc).

I mean, that's how it was explained to me, but happy to be proven wrong.

A large part of a credit score is determined by a track record of on time payments. You don't need to spend 95% of your net income on weird stuff to do that.

Are you sincerely confused that building a credit score requires you to actually use credit?

This is pretty inaccurate in my experience. I have always had a score above 800 and never took on heavy debt and paid of credit cards monthly.

I suspect most of the building credit Behavior comes into play when you are trying to dilute derogatory marks on your credit reputation. If you missed a $50 bill, it is better if it is one of hundreds of transactions then one of 10.

With that said, I can see the value of showing some experience of servicing debt. Imagine being a banker talking to someone asking for a large loan. Someone with a documented history of paying on time is naturally lower risk then someone with no history

You’re basically correct (although 95% of income is drastically overstated, it can be far less than that), but I don’t understand why you can’t wrap your head around that? If you’re never taking on any credit debt then of course you will have a non existent credit score. If I’m a lender, how would I possibly know you’re capable of paying back a loan without some audit trail of your past ability to do so? It seems an incredibly simple concept to understand.

A side effect of the credit system in the United States is that it "entrenches and reinforces inequality by dictating a consumer's access to future opportunities."[0] This primarily affects minorities, though anyone in poverty suffers from the credit rating system.

In regards to scoring, its complex, but generally: pay your debts on time and on schedule. Importantly, do not pay off loans early. You'll get positive points for eliminating debt, even early, but more positive points for paying the maximum interest the bank would like to earn from the money they loan you.

0. https://www.nclc.org/images/pdf/credit_discrimination/Past_I...

There's certainly some uses of credit score that don't seem right (such as when it's used to price insurance). But I don't see what that has to do with democracy?

At its core, credit reporting agencies are collecting a registry of information about your credit accounts. How long have they been open, what's the total amount of credit available and the current balance. This is then used to determine if a lender wishes to offer you more credit, and if so, at what rates. A credit score is an algorithm to generate a numeric value from all those records (or the result of such algorithm). It's a labor saving step that also allow a lender to be more consistent in underwriting decisions. Typically, a credit card will check credit scores and ask about income, and similar for a car loan; a mortgage will be more likely to read the whole report and ask for paystubs to validate income, as well as require a release for tax records (but usually not actually request them). Without credit reporting, you would probably need to get letters from previous lenders attesting to your timely payments, etc; but it would be easy to leave out the lenders you didn't pay. Credit reporting gives lenders who don't get paid a stick to influence their borrowers that's easier to administer than taking them to court (which would generate court records, which are generally public in democracies).

Generally to score well, you want to have several active credit accounts in good standing (no reported late or missed payments), utilization on revolving accounts (credit cards) at 30% or less in aggregate, and probably 85% on individual cards, but not having significant balances at more than two or three cards, at least one account having been open for many years, not any or at least not many accounts opened in the last year, and it's helpful to have a current or recent installment loan (like a car loan or mortgage). Hard to say where you would fit on the scoring, depends on if your mortgage is still current, and what you do with credit cards.

> So technically I’m sort of a terrible customer for a bank, but I imagine my credit score would be quite high?

Correct. It's not a profitability score, it's a risk score. The only thing it tracks is how likely they think you are to pay back the loan.

They like to see activity though, they want to see you borrow money and pay it back. If you never borrow money your score can be lower since they don't have data on it.

> But an actual credit score? That seems very dystopian.

At the end of the day your lender is going to evaluate you. In the US they standardized it instead of letting it be subjective. Does that really seem dystopian?

> I have savings and investments, but I manage them myself meaning that I generate no real fees of note for the institutions that house them.

They generate profits by loaning those out and not giving you the interest.

> I’ve always been a little afraid to ask, but isn’t it sort of weird that it is legal to score your citizens like that in a democracy?

Why? The govt is not scoring you. It is done by companies.