Depends on the country but in the US credit rating is king. I knownpeople who moved to US who are taking a loan for a car and immediately pay it off just to build a score.
Agree, I think there's also an overblown perception that you need to obtain credit and loans in order to build a decent credit rating. Which whilst true, doesn't really disadvantage you if you don't.
Well, my impression was that in the US you need to establish some kind of credit history to get a good credit score. Whereas here it is normal for people with no credit history to get loans and mortgages.
Again, there are many countries - including First World European countries - that don't have the credit score system, or only have reports on non-payments (usually govt-run). They seem to be doing just fine.
This is another funny thing that's different in the US compared to EU, your credit ratings are done backwards.
Here, if you have never had a loan or credit card, never missed a bill payment, have a steady income, then your credit history is perfect. If you want a loan or a credit card, you'll get one instantly.
I have a home mortgage, a student loan, and a credit card I rarely use, and my credit rating is slightly worse than someone who has the same income as me, but no loans or mortgages. But in the US, it would be the exact opposite, I would be the one with a great credit rating, and the other guy would have problems getting a credit card.
So weird. :-)
I might be working in the US in the future, and I'm really dreading having to deal with US banks. I will definitely look into getting an account with a credit union instead.
There's no such thing as a credit score (at least not in the US sense).
The big problem with the US system is that it gets you needlessly hooked on the whole idea of credit. As per this very example, you need to do things like get credit cards just to pay them off on time, or else you're screwed when it comes to things like getting a mortgage. In most of Europe the key factor for that sort of loan is simply whether you have a steady income that's high enough to make the payments, factoring in outstanding debts. A credit check will show up things like whether you've a history of missing payments on any existing credit, and that can certainly be taken into account, and most lenders have their own version of a 'credit score' they'll apply based on all that info — but it's not a centralised thing, and it's generally more concerned with raising past problems as a red flag, rather than with past good behaviour.
If you've a history of living within your means that should be a good thing, not a bad thing.
Many European countries do not have a credit score system. Companies and banks are a lot less inclined to give you credit, but I don't see how that is a bad thing for society?
Lots of countries in Europe have nothing remotely resembling the US credit scoring system and people there obviously live comfortable, modern lives and have access to financial services.
Good credit doesn't mean no risk of defaulting; it means less risk. Fewer of the people with good credit defaulted than of those with bad, which is the only thing a credit rating really claims.
Credit rating is explicitly intended to be an indicator of future repayment. That's the whole point of the system.
The whitelist-type system of building a credit score in the USA just seems weird and invasive to me. Here in Germany you have something more like a blacklist: You pretty much have a good credit score by default and only get a bad score by not paying bills or not paying back debt on time. I have a perfect credit score in Germany despite never taken any debt in my life.
You're presenting that as a rhetorical question with an "obvious" answer, but it's not obvious to me at all that the latter person is clearly a lower credit risk. Being financially stable enough that you never need to borrow any money seems like as much a positive indicator of creditworthiness as a history of paying off loans in time.
I think you're bringing very US-centric prejudices to the table. In many countries there is no such thing as a credit score and having no credit history is considered equivalent to having a history of on-time payments. As long as you don't have any delinquent payments you're good. So clearly the financial institutions in these countries agree with my assessment.
Honest question, what do other nations do to determine credit-worthiness? There has to be some sort of risk assessment on the part of banks and other financial institutions. And that risk assessment would have to be made for immigrants there as well, presumably with less/zero data?
FWIW, as much as Americans complain about the credit score system, it's mostly not a problem (for most people, most of the time). It's not hard for a middle-income person to earn and maintain a top-tier score (800+) and the lowest possible APRs when borrowing.
And assuming a prospective employer would assist you with finding housing, it's not hard for an immigrant to begin building their credit score. Just make sure your landlord reports rent to the credit agencies and take out a credit card. 3-6 months later, you have a decent score.
Identity theft is a real problem, but that extends well beyond the credit agencies.
The whole credit rating system as it is in the US seems complete ass-backwards to me. It basically encourages people to go into debt to build a history of paying it back in time.
Here in the Netherlands it works exactly the opposite: the best 'rating' is to not be in the system at all. When you get a loan, the amount and monthly payments are registered. This registration is removed once you have paid back the loan.
When you ask your bank for a loan, they basically look at two things: how much is your income and how much are your current financial obligations (i.e. existing loans). Cost of living is subtracted from your monthly income, as well as the monthly payments of your existing loans (from the national debt registry). What's left is how much (additional) monthly payment you can afford. If the monthly payment for your newly requested loan is above this number it will be refused.
As such there is no such thing as a good or bad rating, only what you can and cannot afford.
I think what the OP was criticizing mostly is that we (Europeans in my case) don't have to build up a credit score, which has to be done artificially (if you are someone who gets X per month and spends X-Y). It's not a criticism of "some credit worthiness beign checked" but this weird notion that if you decide to route all your bills through your credit card you are suddenly credit worthy, whereas if you pay the exact same amount every month in cash, you are not. Which in turn means if you happen to move here you don't have to start working hard at just building this imaginary score.
I would disagree, as things stand, getting a loan is easier if you have a good credit rating, but it is a deformation of the space.
If there was no credit reporting, the lender would still need to loan just as much. They would base their decisions on other factors (down payment, wages, employ stability, assets, ...) rather than the extremely invasive credit rating.
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