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Comment by alkonaut | Hacker News Reader

Does anyone else live in a place where there isn't a visible "score" for how valuable you are, but rather only a "credit check" for how risky you are, which is performed if you apply for new credit (buying anything with an invoice, getting a credit card, or taking any other kind of loan)? Meaning that if you have a good income and no history of failing payments, you are basically passing the check with flying colors, and will have the same "score" as someone who has had tons of well-served credit before?

This thing where the score as in "risk" and score as in "business opportunity for lenders" is intertwined, and creates weird incentives for consumers, is that only a US thing or do any other countries have something similar?

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Credit scores aren't a score of how valuable you are, they're a score of creditworthiness or how unlikely you are to default on a loan. The largest factors are age of credit and payment history. Utilization is also a factor. Someone who occasionally misses payments and has high utilization is going to be more profitable but higher risk to lend to.

Just because that’s what a scores is designed to do it doesn’t mean that’s what businesses use it for downstream.

The fact people always debate what a credit score really means suggests that there are too many factors rolled up into a single number when we should really have a few distinct sub-scales. Anybody that has made a dashboard for a ceo with a short attention span that refuses to deal with nuance and just wants to see “a number” knows this problem all too well

I agree in general, but a credit score absolutely DOES NOT tell you how profitable someone is to lend to, and in general someone with a very high credit score is a very low margin customer.

And that's where interest rates come in. Lenders will typically make similar profit margins on all types of customers regardless of credit score. They charge lower interest rates to borrowers with high credit scores so it all evens out when averaged over a large customer base. Most lending markets are highly competitive so any major differences quickly get arbitraged away.

A score alone does not directly do so. But there is a report attached that will track balances and such. While balance tracking has no "history" in a credit report, lenders can make actuarial guesses based on DTI and other markers which are absolutely included. Which is why, when denied, you don't just get told "Your score is too low" but things like "existing balances are too high", "age of existing accounts is too new", etc.

Yes, which is exactly why Fair Isaac Corp. sells multiple different scoring models customized for different use cases. It's not just one FICO score. For example, auto lenders usually stratify borrowers in a different way from home mortgage lenders. Contrary to the naive hot takes on HN, lender CEOs are well aware of these nuances.

Credit scores in the US function similarly to this risk assessment you describe, with the caveat that there is no standard way to measure risk without a credit history. In my experience, it does not take very long to establish that baseline, and there are inexpensive vehicles to do so, such as secured credit cards. Small-scale lenders are likely to accept alternative documents like income statements or proof of payment history to qualify. FICO scores, as imperfect as they are, merely simplify the risk assessment process.

I suppose it may be related to the overall "looser" grip on who exists, and what counts as collateral. If I "default" on a loan, the lender is still pretty safe to get back most or all of it, since any loan is secured by my future income. So there's not as much need to prove my credit history - my income is public and always was, and my future income is collateral for any loan, including mortgages if my house is suddenly under water in a recession.

That means that barring any failures to service credit in the past, I don't need a history of successfully servicing credit in order to get credit.

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