4 ms·

Dumb question about the "may have an impact on your credit score" part: In European countries, as far as I know (maybe UK is an exception) this concept of cred

Dumb question about the "may have an impact on your credit score" part: In European countries, as far as I know (maybe UK is an exception) this concept of credit score doesn't exist. Even if there might be some hidden scores, nothing prevents you e.g. from getting internet, phone, place to rent due to not having a "credit history" when moving to a different country so if there's anything it's unnoticeable for that. If you want a mortgage, they do look at things like your income, wealth, and there exist official ways to register someone is behind on debt, and get a statement you're not. But so the question is: why is this such a fine grained numbers game in the US? The goal is the same as in Europe I assume: know if who you give a loan to can pay it back. Isn't a system where this is based on a score that even gets affected by a bank closing accounts for their own reason counter-productive for that?

jypepin 5y ago
This forces people to do things they may not be interested in otherwise, such as keeping multiple credit cards, etc. on which banks make money.
- avalys 5y ago
  Give me a break. Even if the credit scoring system incentivizes you to keep accounts open, it doesn’t incentivize you to use them. In fact, having too large a balance on your credit cards (i.e. too much usage) is a negative factor in your credit rating.
  - anyfoo 5y ago
    It was very weird for me when I moved to the US as an adult, and had to explicitly open "credit lines" and actively use them to build "history". In Germany, using "credit" for anything less than a house or a new car seemed rather heavily discouraged to me.
    - avalys 5y ago
      It was weird for me when I traveled to Germany and had to pay for almost everything in cash because the country doesn’t like electronic payments. What’s your point?
      - anyfoo 5y ago
        My point was that just keeping negative records, instead of forcing people to open credit lines to build history, seems to work out very well in other parts of the world. And so there may be a point to the assertion that this system of having to build "history" is to incentivize credit usage. I don't see what electronic payment usage has to do with it. There is electronic payment usage in Germany, but it's almost entirely debit cards. The reluctance to use electronic payment at all has nothing to do with whether it's one or the other.
  - jypepin 5y ago
    Sorry if this was not clear, but I did not say you have to use credit cards.
    - avalys 5y ago
      You said this was an incentive for consumers to “[keep] multiple credit cards, etc. on which banks make money”. Banks don’t make money off credit cards which are not being used.
- deleted 5y ago
  [deleted]
- anyfoo 5y ago
  Person who grew up in Germany and moved to the US, here. It's also worth noting, that credit cards aren't too much of a concept in Europe at all. They do exist, but I remember them mostly being used for traveling and online payment (e.g. when the seller is international and PayPal isn't an option). I recall that before the latter was a thing, it was even rarer. My father (who traveled a lot for his job) had one, and it was "interesting".[1] My parents also strictly taught me that "taking a credit is a very bad thing, you are spending money you don't have", so credit cards had a kind of "dangerous" aura just by their name. As an adult, I of course have no trouble using credit cards here in the US (I just pay them in full all the time), and I can easily calculate that it usually makes more sense to buy houses and sometimes even cars with a low interest credit, but I am glad to have received that lesson... [1] Also taxis. Taxis were special there. Back then mobile data networks weren't a thing, so electronic payment options weren't really available for Taxis. However, credit cards had this "ratchet" thing that was entirely mechanic. Couple that with the fact that Taxis spent (and still spend) a lot of time at airports, it comes back to the "traveling" use case, but this time inbound. I have no proof, but I highly suspect that most local people paid Taxis in cash, as was (and maybe still is) much more common in Germany in general anyway.
  - jameshart 5y ago
    > credit cards aren't too much of a concept in Europe at all. Yeah, no, that’s just a Germany thing.
    - jypepin 5y ago
      They are not much of a thing in France either.
    - anyfoo 5y ago
      I don't particularly recall it being a thing in France and Italy either, both countries I have strong connections to, although admittedly I have never lived there as an adult, so I may have missed that aspect entirely. It would maybe help if you could elaborate in what European countries you say credit cards are usually used for every day payments?
    - 5y ago
Hamuko 5y ago
Finland is currently considering a "positive credit registry", since our currently credit assessment is based on being a delinquent or not. >A positive credit information registry would have many benefits to both consumers, creditors and the entire financial market says the study by Pellervo Economic Research and University of Vaasa. It would decrease the risk of overborrowing, improve consumer's status on the market and increase the stability of the financial markets. In addition it would improve the consumers' ability to control their own financial situation.
bberenberg 5y ago
While FICO is highly problematic in a number of ways, I think many people miss the upsides of it. In a system like you describe, there are only negative marks against a creditor. Take this example scenario: - You move from location A to location B - Your internet bill is not cancelled correctly and they send you a $50 bill - You never get the bill and it goes to collections - This leads to a negative mark on your credit In your system, you are the sum of your mistakes. With the US system, the negative mark is offset by the positive actions you are taking at the same time. Does it hurt your credit? Yes. Is it nearly as damaging as the negative only system? No.
- Msurrow 5y ago
  Not really. In Denmark the offical “bad payor” register (RKI) is not something you easily and without noticing is registered into. And you can get de-registered simply by paying off you debt as far as I know. So, besides that, banks look at income, loans, mortage vs house valuation especially. At least, as far as we consumers know. That means, if I want a mortage loan for a house, actual and relevant factors weigh in on what I can get approved for. To me, thats way better than some scoringsystem where my score depends on sp many different actual and historical things.
- lokedhs 5y ago
  Your example wouldn't have happened though, at least in Sweden. Registration into the bad lender registry doesn't happen automatically, and the government knows your address after you moved, so they would be able to inform you what's going on. There are benefits and drawbacks of course. I ended up in the registry for not paying my taxes on time (I had challenged a tax authority decision and thought I did need to pay it while the investigation was ongoing, so it was my fault). For this I was on the registry for 3 years and it was seriously annoying, similar to having a bad credit score in the US I can imagine. There was nothing one can done about this other than waiting for you to be removed from the registry after 3 years. The benefit is that that the system is completely transparent, and is not based on random metrics such as an account being closed or whether or not you have any loans at all (the last part is bizarre to me, you should be rewarded for being debt free, not punished).
B4CKlash 5y ago
There are two aspects of 'your' credit score that could be effected by the shutting down exisiting credit lines. The credit score system is certainly not perfect, but I don't believe these are nonsensical metrics. 1). Average age of credit - If this is your oldest dated credit it could have a sizeable impact on the average. 2). Credit utilization - The total amount of credit extended to you divided by the total amount used. $5000 across $50,000 of extended credit (3 credit cards, auto loan, line of credit) is 10% utilization. If WF closes your $25,000 your utilization just doubled without any change on your side (plus a potential ding for average age).
fuzzy2 5y ago
Not sure which "concept of credit score" you might be referring to, but in Germany, there's Schufa (among others). They calculate a credit score using secret formulas. So I'd say it's pretty much the same.
- anyfoo 5y ago
  I don't think it is, at least it always seemed to me that if you take up no credit, Schufa won't be a problem. While when I moved to the US, I had to open credit lines to build "history". Then again, I don't know what fully goes on with Schufa, so maybe it just wasn't a problem for me. But then what would be the problem without "history"? Had I built a house or bought an apartment, I am very sure they'd primarily look at your income. And the one time I had took a "Bildungskredit" because I was financing my university time myself, my non-existing Schufa records did not come up either. Correct me if I'm wrong, but it much rather seemed like a "bad payer" register to me (as a cousin comment just called it for Denmark).
  - fuzzy2 5y ago
    Hm, yes, missing history isn't as bad, I guess that's true. However, Schufa isn't exclusively about credit. It records all kinds of information like your address, your phone/mobile plans, all your bank accounts. Credit requests (where you get a quote and then not follow through), too. It's definitely not a bad payer register.
macksd 5y ago
Not that I think the credit-reporting system in the US is sane or fair, but one of the factors that may go into one's score is the amount of credit you have available to you (i.e. a reflection of how much other lenders have already decided to trust you). So if you have a bunch of credit cards with low balances? That looks good. You can only get approved for a couple, and you push them to the limit constantly? That looks bad. An account closes, for whatever reason? Affects that metric. I wouldn't expect it to be significant, but people who monitor credit closely might notice.
rad_gruchalski 5y ago
In Germany there is something called Schufa. https://www.schufa.de/en/ https://www.schufa.de/en/. Used almost everywhere by everyone. Want to rent? Buy a car? Buy a house? Have your Schufa report - score between 0 to 1000.
- anyfoo 5y ago
  Yes, but is it a bad thing if your Schufa record is non-existent? My impression was that no, that counts as a "clean record". In the US, you need to have "positive history", i.e. lots of credit usage without problems.
  - rad_gruchalski 5y ago
    As far I as remember, no record means “positive history”, indeed.
bytematic 5y ago
Debt is inherently tied to American moral values. It has a use so it has never gone away, despite it causing damage.
- deleted 5y ago
  [deleted]
foobarbazetc 5y ago
It's just a broken, entrenched system. I personally know a CEO who moved to SV, was worth something like $100m+, and the bank wouldn't give him a home loan because he didn't have the right credit score yet. He was literally building his credit with an Amex using their global transfer system. On the other hand, FICO scores are so easy to game that once you get a couple of cards going, you can leverage those to get more cards, etc, etc and optimise your score that way.
- timbo1642 5y ago
  Its not broken, it works as intended. Just because you don't like it doesn't make its broken. A credit score is a trust score. Someone with no credit or bad credit isn't trustworthy even if they can afford something. We see this issue in the real world with entitled people making a lot of money that don't like to make the payments they agreed to on what they purchased. Keep in mind these are new money people and usually in the rap/music business or even some athletes.
the_third_wave 5y ago
In Sweden companies often do a credit check before allowing you to to buy on invoice or subscribe to services. The credit check will fail to go through if your income lies below a certain limit (this information is gathered from the tax office) or if you have defaulted on a bill in the past leading to the state debt collector ("Kronofogden" [1], translates to "The Crown Bailiff") becoming involved. This leaves a mark on your record ("betalningsanmärkning") which stays there for 3 years after the debt has been paid. [1] https://en.wikipedia.org/wiki/Swedish_Enforcement_Authority https://en.wikipedia.org/wiki/Swedish_Enforcement_Authority
gazoakley 5y ago
The UK also has credit scores, although they’re not the sole factor in acceptance for credit. Experian, Equifax and Transunion all have their own individual scoring systems with different scales - I’m not aware of a standard like Fico here. As for shutting down accounts affecting scores - most scores factor in credit utilisation %. Maxing out a credit card can indicate that a borrower is having problems making repayments, so keeping utilisation under around 30% is helpful for a good score. Closing old accounts reduces access to credit, so the utilisation % increases.

jypepin 5y ago

This forces people to do things they may not be interested in otherwise, such as keeping multiple credit cards, etc. on which banks make money.

avalys 5y ago
Give me a break. Even if the credit scoring system incentivizes you to keep accounts open, it doesn’t incentivize you to use them. In fact, having too large a balance on your credit cards (i.e. too much usage) is a negative factor in your credit rating.
- anyfoo 5y ago
  It was very weird for me when I moved to the US as an adult, and had to explicitly open "credit lines" and actively use them to build "history". In Germany, using "credit" for anything less than a house or a new car seemed rather heavily discouraged to me.
  - avalys 5y ago
    It was weird for me when I traveled to Germany and had to pay for almost everything in cash because the country doesn’t like electronic payments. What’s your point?
    - anyfoo 5y ago
      My point was that just keeping negative records, instead of forcing people to open credit lines to build history, seems to work out very well in other parts of the world. And so there may be a point to the assertion that this system of having to build "history" is to incentivize credit usage. I don't see what electronic payment usage has to do with it. There is electronic payment usage in Germany, but it's almost entirely debit cards. The reluctance to use electronic payment at all has nothing to do with whether it's one or the other.
- jypepin 5y ago
  Sorry if this was not clear, but I did not say you have to use credit cards.
  - avalys 5y ago
    You said this was an incentive for consumers to “[keep] multiple credit cards, etc. on which banks make money”. Banks don’t make money off credit cards which are not being used.
deleted 5y ago
[deleted]
anyfoo 5y ago
Person who grew up in Germany and moved to the US, here. It's also worth noting, that credit cards aren't too much of a concept in Europe at all. They do exist, but I remember them mostly being used for traveling and online payment (e.g. when the seller is international and PayPal isn't an option). I recall that before the latter was a thing, it was even rarer. My father (who traveled a lot for his job) had one, and it was "interesting".[1] My parents also strictly taught me that "taking a credit is a very bad thing, you are spending money you don't have", so credit cards had a kind of "dangerous" aura just by their name. As an adult, I of course have no trouble using credit cards here in the US (I just pay them in full all the time), and I can easily calculate that it usually makes more sense to buy houses and sometimes even cars with a low interest credit, but I am glad to have received that lesson... [1] Also taxis. Taxis were special there. Back then mobile data networks weren't a thing, so electronic payment options weren't really available for Taxis. However, credit cards had this "ratchet" thing that was entirely mechanic. Couple that with the fact that Taxis spent (and still spend) a lot of time at airports, it comes back to the "traveling" use case, but this time inbound. I have no proof, but I highly suspect that most local people paid Taxis in cash, as was (and maybe still is) much more common in Germany in general anyway.
- jameshart 5y ago
  > credit cards aren't too much of a concept in Europe at all. Yeah, no, that’s just a Germany thing.
  - jypepin 5y ago
    They are not much of a thing in France either.
  - anyfoo 5y ago
    I don't particularly recall it being a thing in France and Italy either, both countries I have strong connections to, although admittedly I have never lived there as an adult, so I may have missed that aspect entirely. It would maybe help if you could elaborate in what European countries you say credit cards are usually used for every day payments?
  - 5y ago

Hamuko 5y ago

Finland is currently considering a "positive credit registry", since our currently credit assessment is based on being a delinquent or not. >A positive credit information registry would have many benefits to both consumers, creditors and the entire financial market says the study by Pellervo Economic Research and University of Vaasa. It would decrease the risk of overborrowing, improve consumer's status on the market and increase the stability of the financial markets. In addition it would improve the consumers' ability to control their own financial situation.

bberenberg 5y ago

While FICO is highly problematic in a number of ways, I think many people miss the upsides of it. In a system like you describe, there are only negative marks against a creditor. Take this example scenario: - You move from location A to location B - Your internet bill is not cancelled correctly and they send you a $50 bill - You never get the bill and it goes to collections - This leads to a negative mark on your credit In your system, you are the sum of your mistakes. With the US system, the negative mark is offset by the positive actions you are taking at the same time. Does it hurt your credit? Yes. Is it nearly as damaging as the negative only system? No.

Msurrow 5y ago
Not really. In Denmark the offical “bad payor” register (RKI) is not something you easily and without noticing is registered into. And you can get de-registered simply by paying off you debt as far as I know. So, besides that, banks look at income, loans, mortage vs house valuation especially. At least, as far as we consumers know. That means, if I want a mortage loan for a house, actual and relevant factors weigh in on what I can get approved for. To me, thats way better than some scoringsystem where my score depends on sp many different actual and historical things.
lokedhs 5y ago
Your example wouldn't have happened though, at least in Sweden. Registration into the bad lender registry doesn't happen automatically, and the government knows your address after you moved, so they would be able to inform you what's going on. There are benefits and drawbacks of course. I ended up in the registry for not paying my taxes on time (I had challenged a tax authority decision and thought I did need to pay it while the investigation was ongoing, so it was my fault). For this I was on the registry for 3 years and it was seriously annoying, similar to having a bad credit score in the US I can imagine. There was nothing one can done about this other than waiting for you to be removed from the registry after 3 years. The benefit is that that the system is completely transparent, and is not based on random metrics such as an account being closed or whether or not you have any loans at all (the last part is bizarre to me, you should be rewarded for being debt free, not punished).

B4CKlash 5y ago

There are two aspects of 'your' credit score that could be effected by the shutting down exisiting credit lines. The credit score system is certainly not perfect, but I don't believe these are nonsensical metrics. 1). Average age of credit - If this is your oldest dated credit it could have a sizeable impact on the average. 2). Credit utilization - The total amount of credit extended to you divided by the total amount used. $5000 across $50,000 of extended credit (3 credit cards, auto loan, line of credit) is 10% utilization. If WF closes your $25,000 your utilization just doubled without any change on your side (plus a potential ding for average age).

fuzzy2 5y ago

Not sure which "concept of credit score" you might be referring to, but in Germany, there's Schufa (among others). They calculate a credit score using secret formulas. So I'd say it's pretty much the same.

anyfoo 5y ago
I don't think it is, at least it always seemed to me that if you take up no credit, Schufa won't be a problem. While when I moved to the US, I had to open credit lines to build "history". Then again, I don't know what fully goes on with Schufa, so maybe it just wasn't a problem for me. But then what would be the problem without "history"? Had I built a house or bought an apartment, I am very sure they'd primarily look at your income. And the one time I had took a "Bildungskredit" because I was financing my university time myself, my non-existing Schufa records did not come up either. Correct me if I'm wrong, but it much rather seemed like a "bad payer" register to me (as a cousin comment just called it for Denmark).
- fuzzy2 5y ago
  Hm, yes, missing history isn't as bad, I guess that's true. However, Schufa isn't exclusively about credit. It records all kinds of information like your address, your phone/mobile plans, all your bank accounts. Credit requests (where you get a quote and then not follow through), too. It's definitely not a bad payer register.

macksd 5y ago

Not that I think the credit-reporting system in the US is sane or fair, but one of the factors that may go into one's score is the amount of credit you have available to you (i.e. a reflection of how much other lenders have already decided to trust you). So if you have a bunch of credit cards with low balances? That looks good. You can only get approved for a couple, and you push them to the limit constantly? That looks bad. An account closes, for whatever reason? Affects that metric. I wouldn't expect it to be significant, but people who monitor credit closely might notice.

rad_gruchalski 5y ago

In Germany there is something called Schufa. https://www.schufa.de/en/ https://www.schufa.de/en/. Used almost everywhere by everyone. Want to rent? Buy a car? Buy a house? Have your Schufa report - score between 0 to 1000.

anyfoo 5y ago
Yes, but is it a bad thing if your Schufa record is non-existent? My impression was that no, that counts as a "clean record". In the US, you need to have "positive history", i.e. lots of credit usage without problems.
- rad_gruchalski 5y ago
  As far I as remember, no record means “positive history”, indeed.

bytematic 5y ago

Debt is inherently tied to American moral values. It has a use so it has never gone away, despite it causing damage.

deleted 5y ago
[deleted]

foobarbazetc 5y ago

It's just a broken, entrenched system. I personally know a CEO who moved to SV, was worth something like $100m+, and the bank wouldn't give him a home loan because he didn't have the right credit score yet. He was literally building his credit with an Amex using their global transfer system. On the other hand, FICO scores are so easy to game that once you get a couple of cards going, you can leverage those to get more cards, etc, etc and optimise your score that way.

timbo1642 5y ago
Its not broken, it works as intended. Just because you don't like it doesn't make its broken. A credit score is a trust score. Someone with no credit or bad credit isn't trustworthy even if they can afford something. We see this issue in the real world with entitled people making a lot of money that don't like to make the payments they agreed to on what they purchased. Keep in mind these are new money people and usually in the rap/music business or even some athletes.

the_third_wave 5y ago

In Sweden companies often do a credit check before allowing you to to buy on invoice or subscribe to services. The credit check will fail to go through if your income lies below a certain limit (this information is gathered from the tax office) or if you have defaulted on a bill in the past leading to the state debt collector ("Kronofogden" [1], translates to "The Crown Bailiff") becoming involved. This leaves a mark on your record ("betalningsanmärkning") which stays there for 3 years after the debt has been paid. [1] https://en.wikipedia.org/wiki/Swedish_Enforcement_Authority https://en.wikipedia.org/wiki/Swedish_Enforcement_Authority

gazoakley 5y ago

The UK also has credit scores, although they’re not the sole factor in acceptance for credit. Experian, Equifax and Transunion all have their own individual scoring systems with different scales - I’m not aware of a standard like Fico here. As for shutting down accounts affecting scores - most scores factor in credit utilisation %. Maxing out a credit card can indicate that a borrower is having problems making repayments, so keeping utilisation under around 30% is helpful for a good score. Closing old accounts reduces access to credit, so the utilisation % increases.