4 ms·

Credit score is by far the most dystopian thing for somebody outside the US.

Freak_NL 5y ago
It's a really strange phenomenon to read about. In the Netherlands unpaid debts are registered which affects your ability to get mortgages and other types of loans, but that is about the extent of it, and more of a flag than a score. There is no numeric value you can influence other than not having any open debts (mortgage excluded). Credit cards are really only used for purchases abroad on the internet; the whole notion of using credit cards to build up credit score is… foreign.
- lotsofpulp 5y ago
  It’s the same thing in the US. Credit cards are popular in the US because due to far higher payment processing, people in the US can earn lots of cash back or other rewards. Of course, many Americans also purchase things by actually using the credit on their credit cards and paying interest on it, but you can easily go through life never paying interest to a credit card company. The numeric value known as a “credit score” is simply a number that someone calculated based on your history of re-paying debts. It can exist in the Netherlands or anywhere, I can even make up my own formula. It’s probably more popular in the US than elsewhere due to its efficiency to evaluate someone’s credit worthiness for a credit card and the US using more credit for regular purchases than elsewhere, but it really isn’t something devious or magical or legislated. For example, a small retailer wants to offer it’s customers credit (i.e. lend them money), but they don’t have the underwriting staff or capability to analyze everyone’s credit history (from their credit reports). Then the small retailer may choose to simply purchase credit scores from a company that does analyze people’s credit history, such as the popular FICO score from the Fair Isaac Corportaion.
ValentineC 5y ago
It's quite amusing how the US focuses so strongly on the separation of powers, but US financial institutions rely so strongly on FICO scores as data points to determine whether to issue credit.
- tptacek 5y ago
  Those scores replaced a far worse system.
- Godel_unicode 5y ago
  Separation of powers is a government thing, FICO is a product sold by a private analytics company. It's also not the only score used
- lotsofpulp 5y ago
  Almost all big financial institutions do not solely rely on FICO scores. They almost all have their own method of scoring. For any large items, such as home mortgages and business loans, I don’t think scores are even used. There’s a person evaluating the applicant to determine if they meet underwriting standards.
  - Spivak 5y ago
    Mortgages definitely use credit scores — they just don’t only use credit scores. Without that data point they would have a hard time evaluating if you’re a good borrower. They can independently evaluate if you could pay your mortgage but not that you actually will.
    - lotsofpulp 5y ago
      I specified FICO scores. Mortgage lenders might also use their own credit scores, or credit scores from a different data analytics company. Either way, a score is just a heuristic to avoid wasting underwriter’s time combing through someone’s finances. Once you pass whatever score hurdle a mortgage lender has set, you still have to pass the manual review.
  - zrail 5y ago
    Scores are an input into the decision on what rate you pay and probably an input into underwriting, but they're not the sole input. Car loans, though, I think are almost entire driven by scores.
Godel_unicode 5y ago
I'm not sure where you're referring to, but virtually all modern economies have an equivalent of credit bureaus for the simple reason that a modern economy cannot function without it. The main difference is that they largely just expose the person's history and let the lender decide, as opposed to trying to distill the whole history into one score to rule them all. Edit: the Dutch bkr, for instance, has recently been sued for charging users to access their database of payment histories. This is important because that record is provided to companies wishing to make credit decisions about an individual. It's also noteworthy that the Dutch in general don't really go in for credit cards the way Americans do, so they interact with that part of the financial system less. That in turn makes for much less interesting "credit reports".
- jltsiren 5y ago
  In many European countries, credit bureaus only report negative credit history. Most people have empty reports, which is the best possible result. Lenders may ask aggregate statistics about other debt (total debt €X, total payments €Y/month) directly from the person, but they have no right to more detailed reports. Also, it's my impression that people in the US often overestimate the importance of the credit score, as opposed to the detailed credit report. Major lenders tend to use private scoring systems anyway. Far too many people know how credit scores work and how to game the system, making public credit scores less useful than secret scoring systems.
throwaheyy 5y ago
Debtors’ prisons are probably more dystopian.

It's a really strange phenomenon to read about. In the Netherlands unpaid debts are registered which affects your ability to get mortgages and other types of loans, but that is about the extent of it, and more of a flag than a score. There is no numeric value you can influence other than not having any open debts (mortgage excluded). Credit cards are really only used for purchases abroad on the internet; the whole notion of using credit cards to build up credit score is… foreign.

lotsofpulp 5y ago
It’s the same thing in the US. Credit cards are popular in the US because due to far higher payment processing, people in the US can earn lots of cash back or other rewards. Of course, many Americans also purchase things by actually using the credit on their credit cards and paying interest on it, but you can easily go through life never paying interest to a credit card company. The numeric value known as a “credit score” is simply a number that someone calculated based on your history of re-paying debts. It can exist in the Netherlands or anywhere, I can even make up my own formula. It’s probably more popular in the US than elsewhere due to its efficiency to evaluate someone’s credit worthiness for a credit card and the US using more credit for regular purchases than elsewhere, but it really isn’t something devious or magical or legislated. For example, a small retailer wants to offer it’s customers credit (i.e. lend them money), but they don’t have the underwriting staff or capability to analyze everyone’s credit history (from their credit reports). Then the small retailer may choose to simply purchase credit scores from a company that does analyze people’s credit history, such as the popular FICO score from the Fair Isaac Corportaion.

ValentineC 5y ago

It's quite amusing how the US focuses so strongly on the separation of powers, but US financial institutions rely so strongly on FICO scores as data points to determine whether to issue credit.

tptacek 5y ago
Those scores replaced a far worse system.
Godel_unicode 5y ago
Separation of powers is a government thing, FICO is a product sold by a private analytics company. It's also not the only score used
lotsofpulp 5y ago
Almost all big financial institutions do not solely rely on FICO scores. They almost all have their own method of scoring. For any large items, such as home mortgages and business loans, I don’t think scores are even used. There’s a person evaluating the applicant to determine if they meet underwriting standards.
- Spivak 5y ago
  Mortgages definitely use credit scores — they just don’t only use credit scores. Without that data point they would have a hard time evaluating if you’re a good borrower. They can independently evaluate if you could pay your mortgage but not that you actually will.
  - lotsofpulp 5y ago
    I specified FICO scores. Mortgage lenders might also use their own credit scores, or credit scores from a different data analytics company. Either way, a score is just a heuristic to avoid wasting underwriter’s time combing through someone’s finances. Once you pass whatever score hurdle a mortgage lender has set, you still have to pass the manual review.
- zrail 5y ago
  Scores are an input into the decision on what rate you pay and probably an input into underwriting, but they're not the sole input. Car loans, though, I think are almost entire driven by scores.

Godel_unicode 5y ago

I'm not sure where you're referring to, but virtually all modern economies have an equivalent of credit bureaus for the simple reason that a modern economy cannot function without it. The main difference is that they largely just expose the person's history and let the lender decide, as opposed to trying to distill the whole history into one score to rule them all. Edit: the Dutch bkr, for instance, has recently been sued for charging users to access their database of payment histories. This is important because that record is provided to companies wishing to make credit decisions about an individual. It's also noteworthy that the Dutch in general don't really go in for credit cards the way Americans do, so they interact with that part of the financial system less. That in turn makes for much less interesting "credit reports".

jltsiren 5y ago
In many European countries, credit bureaus only report negative credit history. Most people have empty reports, which is the best possible result. Lenders may ask aggregate statistics about other debt (total debt €X, total payments €Y/month) directly from the person, but they have no right to more detailed reports. Also, it's my impression that people in the US often overestimate the importance of the credit score, as opposed to the detailed credit report. Major lenders tend to use private scoring systems anyway. Far too many people know how credit scores work and how to game the system, making public credit scores less useful than secret scoring systems.

throwaheyy 5y ago

Debtors’ prisons are probably more dystopian.