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Good thing you can opt out of your data being collected by Equifax, right.. right? Seriously though, how did credit scores come about and was there any resista

Good thing you can opt out of your data being collected by Equifax, right.. right? Seriously though, how did credit scores come about and was there any resistance at all at the time to peoples' financial information being collected en mass by private companies?

deleted 4y ago
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adrr 4y ago
How else would you do risk management for loans? Without credit bureau where would the loan originator determine the risk of the loan? Would each individual be responsible have to store all payments and receipt of payment and submit that? Or do we just blend the risk with everyone so if you always paid your loans on time, you pay the same rate as someone who has a loan write off and is 3 months behind in loan payments?
- kneebonian 4y ago
  > How else would you do risk management for loans? Without credit bureau where would the loan originator determine the risk of the loan? Would each individual be responsible have to store all payments and receipt of payment and submit that? You act like this is ridiculous but the fact of the matter is that I would prefer that, because ultimately the difference agency in this situation I provide the lender my information that I control, in any other scenario my agency has been taken away by an outside group, whom I may or may not trust. Hell imagine how different everything would be if instead of the Credit Unions working for the lenders I instead paid for a service myself that performed this service for me. The difference being one is done to me the other is done by me.
  - mhb 4y ago
    And there's also a middle ground where you could subscribe to a credit agency and own the data which you could have them supply to a potential lender.
    - epicureanideal 4y ago
      Maybe a premium paid credit agency could be a thing?
  - PragmaticPulp 4y ago
    > You act like this is ridiculous but the fact of the matter is that I would prefer that, because ultimately the difference agency in this situation I provide the lender my information that I control, in any other scenario my agency has been taken away by an outside group, whom I may or may not trust. This wouldn’t work, because borrowers would only present receipts for credit they repaid on time while withholding information about lines of credit they failed to repay. The point of credit history is that it exposes your past payments or failure to repay. It’s not an equivalent system if borrowers can just conveniently forget to mention the other loans they didn’t repay
    - techsupporter 4y ago
      > It’s not an equivalent system if borrowers can just conveniently forget to mention the other loans they didn’t repay Which is, of course, what we currently have, except it's the businesses who are able to "conveniently forget to mention" instead of the borrowers. I pay myriad bills on time and in full every month, but only three of them--all loans--report my positive payment history to credit bureaus. Yet all of them, from mobile phone providers to landlords to utilities to insurance companies, insisted on being able to look at that payment history. They get the benefit of being able to evaluate me on an incomplete set of data; why shouldn't I get the return? (The answer as always is that we don't have any leverage. Simply saying "well, then don't use those companies" is a non-answer when every company does it the same way and all of them lobby government to keep it that way.)
      - willcipriano 4y ago
        Many places will report a debt to collections but not also send in data that you've been making regular payments.
      - gruez 4y ago
        >Which is, of course, what we currently have, except it's the businesses who are able to "conveniently forget to mention" instead of the borrowers. >I pay myriad bills on time and in full every month, but only three of them--all loans--report my positive payment history to credit bureaus Okay, but the reason for that seems to be due to practicality reasons rather than some sort of concerted effort to oppress consumers. The types of accounts that do get reported to credit agencies (off the top of my head: credit cards, student/car/personal loans, mortgages) have one thing in common: they all have high dollar amounts in at least one of: monthly payment, total owed, and available credit. Being able to stay on top of payments and/or not get into debt spiral provides a much stronger signal about your credit worthiness than you being able to afford the $100/month electric bill. Therefore, bills typically don't get reported, and presumably that's factored in the credit models. After all, the bills that you mention are mostly mandatory (eg. utilities), so it's reasonable to assume that if you don't have any such bills sent to collection, that you got those bills and paid them on time for all of your adult life.
  - cortesoft 4y ago
    There is nothing stopping a company from offering credit using this strategy. They don't have to source their credit rating from an existing credit agency. Why would someone want to give credit this way, though? If the rating is provided by a company that is paid by the person requesting credit, why would the company giving credit trust it?
- ATMLOTTOBEER 4y ago
  I like the current model of risk management, but the problem is that if a bank is defrauded by someone pretending to be you, you’re on the hook. That is, the credit bureau doesn’t do a good enough job verifying identity.
  - mhb 4y ago
    And it's completely ridiculous that that isn't entirely the bank's problem and you should be able to sue the credit agency for libel.
    - kmonsen 4y ago
      It’s because they call it identity theft. It’s not the bank getting defrauded but you having your identity stolen. Someone steals $1000 from a bank, they come to you and say hi he said his name was kmonsen so we would like to get the money back from you.
    - sokoloff 4y ago
      The credit agency is reporting what has been reported to them. If credit agency Foo correctly reports that “Bank A has reported to us that mhb is delinquent on their loan”, that’s not libel if the bank did report that and the agency has no reason to believe the underlying fact is untrue. (Once you start the dispute process, they stop saying that for a while until it’s resolved. My mental model is a lot of the dispute process is based on avoiding libel.)
      - mhb 4y ago
        In that case, yes. Not in the case of "identity theft" in which the person is incorrectly authenticated by the credit agency.
        sokoloff 4y ago
        What does "authenticated" mean in this case? When I apply for credit, the credit is granted by a bank or financial institution. They are the ones responsible for authenticating that I am who I say I am, not the credit agency.
- hanoz 4y ago
  Well for starters you could voluntarily submit your repayment history to one of a pool of competitive good-for-the-money record keepers, rather than it being involuntarily hoovered up by a state sponsored oligopoly.
  - bombcar 4y ago
    That’s basically what you have now - every single reporting agency somewhere in the giant ball of terms and condos states that they’ll report on you to credit burros. You can avoid it by avoiding any of those accounts. Whether that is possible practically is another question.
    - CSMastermind 4y ago
      > Whether that is possible practically is another question. Well it's sort of the key question though right? The incentives of the credit reporting agencies are fundamentally unbalanced because the average consumer has no meaningful input into their behavior. If could practically avoid having my information sent to bad actors they would be incentivized to treat my data with care. This is an example of where good government regulation can be introduced (giving consumers the option to opt out) rather than what I would consider bad government regulation (trying to specify how the companies should behave directly). I believe in the free market but I also understand that there are cases where incentives are incorrectly balanced and we need a neutral party to make sure all incentives are properly accounted for.
      - judge2020 4y ago
        > The incentives of the credit reporting agencies are fundamentally unbalanced because the average consumer has no meaningful input into their behavior. Howso? The lenders are obligated to submit truthful data, and under FCRA you can dispute fraud and incorrect data. And the FICO/Vantage scoring system can be computed from the data, they don't just spit out a hidden number generated by some ML model.
        4y ago
- heavyset_go 4y ago
  Someone else's on-time mortgage payments were reported on my credit score for years after I turned 18. I ended up with amazing credit for it. These companies can't even keep track of what they're purportedly supposed to keep track of, why should they continue to exist as they do today?
  - eyelidlessness 4y ago
    I’ve had a few lucky mistakes in my credit favor, but nothing like that! It shouldn’t be surprising that you take such a principled position in light of that, but it is. Good show.
    - heavyset_go 4y ago
      I figure it could have just as easily been a mistake that wasn't in my favor that I'd have to spend years sorting out to my detriment.
  - systematical 4y ago
    I've had the opposite experience sort of. A company sold my home loan off as-is common and failed to close the account. They reported me as delinquent to the credit bureau. So I did the thing you are supposed to do, repeatedly contacting mortgage loan fools to inform them my account is in good standing (took three times) and of course filing a dispute with the credit bureaus. After having a credit score north of 700 for over a decade that was at 780 at its peak, my score dropped to around 600. I was horrified. It's been a year and it still hasn't recovered and is currently around 700 through no fault of my own. The only debt I've had since 2018 is home loans. Fuck them all.
    - heavyset_go 4y ago
      That should be criminal, or at least have some civil liability because I'm pretty sure you'd be able to prove damages. Insane that there's little to no recourse for this at all, and that none of the parties responsible for such an error will be held responsible for them.
- bombcar 4y ago
  You’d have loans that tie back to physical objects that can be repossessed - and the down payments would be large. And if someone fraudulently defaulted you’d pursue criminal charges. It’s totally workable but it would cut consumer spending considerably. You could even still do credit cards - just require them to be backed by the amount in cash.
  - russellendicott 4y ago
    This is basically how things used to work. The drawback is that young people with no credit can't build credit easily. You'd be disproportionately favoring those familial lineages with assets and losing out on a huge potential customer pool. With better centralized data it's possible to having something of a win-win where banks get more customers and people can bootstrap their own lending reputation without having the last name "Jones". Of course there's the tradeoff that you have to trust an institution to be a good steward of that data...
    - bee_rider 4y ago
      What would be the negative effects of that drawback? Higher wealth inequality? Increasing age for first time home buyers? The ability to build credit isn’t actually an advantage in and of itself. In most other lines of business, if the business tried to point to “we’ve given you more opportunities to prove yourself a worthy customer” as a perk we’d laugh at them.
      - bombcar 4y ago
        The argument is that advantaged groups (privileged communities) get to build their life on credit and quickly become doctors and lawyers and such, and that denying loans to people who haven't proven the ability to repay (or who do not have people to co-sign) prevents them from getting a leg up on the pile. There's something to it. But what we have seen is that the banks and companies prey on the disadvantaged people pretty effectively; note the absolute magnitude of student loans given to poor students for degrees that don't show a practical repayment opportunity. And there's also the argument that easy access to very-low interest rate credit precisely is what is causing house prices to be so astronomically high - if credit isn't as available. The overall practical result would be an increase in the cost of credit and a slowing of the economy. Disadvantaged groups could be assisted in other ways, however; the way we try to do it is not necessarily the only possible way.
- deleted 4y ago
  [deleted]
- jawns 4y ago
  One novel method that auto insurers have been experimenting with is voluntarily reporting data that can only help, not hurt. So, for instance, if you install their monitoring device in your vehicle and it shows that you don't drive in risky ways, you qualify for a discount. If you choose not to volunteer this data, or the data shows that you're a risky driver, you pay the base rate. Now, is that really "volunteering" the data, or do you end in up roughly the same position as with the credit bureaus, where you need to turn over lots of personal information to get reasonable rates? I think reasonable people can disagree about that.
  - TylerE 4y ago
    Careful. What seems to really happen is they jack the base rate up a bit, and their threshold for safe driving is “never speed, at all, or use more than 10% throttle or 25% brake”
  - eyelidlessness 4y ago
    This works for things like car insurance because most people aren’t driving secretly insured cars they don’t tell other insurers about, and because many of the factors determining your car insurance rate are cited by the state. It could work for loans too, but it’d require creating a state agency which… well, I decided not to post that surely unpopular opinion.
  - toast0 4y ago
    > One novel method that auto insurers have been experimenting with is voluntarily reporting data that can only help, not hurt. So, for instance, if you install their monitoring device in your vehicle and it shows that you don't drive in risky ways, you qualify for a discount. If you choose not to volunteer this data, or the data shows that you're a risky driver, you pay the base rate. How is this help, not hurt? Insurers are tightly regulated in most states, and the sum of the premiums for a group can't be mlre than the losses for that group plus an allowed profit margin. If you give someone else in my group a discount, that's coming out of my pocket in some form or other. (Of course, if the discount encourages them to drive in a way that reduces losses, that could be money going into my pocket too; either way, I'm not letting them snoop on me, thanks)
- oneoff786 4y ago
  If credit bureaus were only a public record of your debt and payments they would not be such an issue.
- twelve40 4y ago
  you _could_ do it Plaid-style, where you consent to share your history (either raw transactions and liabilities to run through a model, or a pre-calculated score) with a potential creditor. That would solve the formal consent problem. But the essence of it is the same: unfortunately, you have to furnish your verified history to every creditor rando if you want their money.
  - judge2020 4y ago
    Also, they can't really verify what you give them. Income verification is already "hopefully they aren't lying" for low-risk credit cards and "we have to call their employer to verify this income" for high-risk loans like housing loans. Verifying this amongst dozens of auto loan departments and credit card operations, likely with different hours of operation, would be extremely labor intensive which is why everyone gets to pull applicant credit history from a central database to determine creditworthiness if they also contribute to that database.
  - readonlybarbie 4y ago
    [dead]
- tverbeure 4y ago
  Here's how they do it in Belgium: https://finance.yahoo.com/news/belgium-deals-credit-without-equifax-experian-transunion-114323975.html https://finance.yahoo.com/news/belgium-deals-credit-without-.... They have a public credit bureau hosted by the national bank that records all the loans and credit. The data is not for sale to just about any company that is willing to pay for it, the individual has to give permission to share it when they apply for a loan. There isn't such bullshit as in the US where you practically have to push your student to get a credit card "to start building up a credit score." The system works well enough that there's hardly any debate about it.
  - gruez 4y ago
    >They have a public credit bureau hosted by the national bank that records all the loans and credit. So basically the same as credit bureaus in the US, but it's a government monopoly? Given how well other government agencies work at least in the US (eg. DMV), I'm skeptical that waving a "government" wand would magically fix stuff. >The data is not for sale to just about any company that is willing to pay for it, the individual has to give permission to share it when they apply for a loan AFAIK that's also the case in the US. When you open a bank account/apply for a credit card, somewhere buried in the terms and conditions is a consent for a credit check. >There isn't such bullshit as in the US where you practically have to push your student to get a credit card "to start building up a credit score." In the US at least, the reason why it's commonly advised for students (and other young adults) to "build credit" is to build up a history of credit usage and repayments. I don't see why the same dynamic wouldn't exist in Belgium. Your own linked article says "Later, it added positive marks as well, allowing “no credit” and “good credit” to be distinguished", which suggests the same dynamic would exist in Belgium.
    - Semaphor 4y ago
      I can only speak of Germany, where we have the equifax-like SCHUFA. > somewhere buried in the terms and conditions is a consent for a credit check. That’s luckily not allowed (as many other burial tactics) and has to be very visible and explicit. Though in the end that doesn’t change much because it’s not as if you have a choice (outside of saying no thanks to the whole thing) > which suggests the same dynamic would exist in Belgium. It doesn’t in Germany. If they don’t know you at all (= no contact with the banking system whatsoever), you are rated higher risk, but just having a bank account for some time is enough to have a good score. Until data protection laws came along, they even charged you to see your own data, nowadays at least you get it free once per year. IMO the biggest differences are the lack of having to "build credit", the incidental lack of an SSN that can be leaked, and the lack of companies allowing someone to wrongly take out a loan in your name and somehow making it your issue instead of theirs.
- petesergeant 4y ago
  > How else would you do risk management for loans? Government-run credit-bureau, like Thailand's National Credit Bureau (NCB), that isn't trying to make a buck. Bank of Thailand (who are behind NCB) is also responsible for Prompt Pay, which is a most-excellent and ubiquitous QR-code and cell-number based instant payment system. American retail banking appears to have been screwed hard by "leaving it to the markets", where government intervention and threats have given us Faster Payments (UK), SEPA Instant (EU), Prompt Pay (TH) etc
  - davchana 4y ago
    To add, the quick payment interface of India, UPI. Unified Payment Interface. Central Bank defined the rules. Every bank follows it. Money still gets settled as regular in behind the scenes, but on front end, customer sees money moving instantly, no fees. Money moves between super verified accounts or customers only.
  - gruez 4y ago
    >American retail banking appears to have been screwed hard by "leaving it to the markets", where government intervention and threats have given us Faster Payments (UK), SEPA Instant (EU), Prompt Pay (TH) etc Looking at this comparison table[1], it seems like the options in the US (Zelle and RTP) arrived in similar timeframes to RT1 in the EU? [1] https://en.wikipedia.org/wiki/Instant_payment https://en.wikipedia.org/wiki/Instant_payment
    - petesergeant 4y ago
      Why am I still receiving ACH and e-check payments from my clients then? Genuinely, I don't know the answer to this -- maybe the US account Wise provides me with is limited? Additionally, every time a Bitcoin maximalist shows up, if they're American they'll tout "fast, cheap payments!" and "right, but what if you wanted to make a transfer to a different bank AND on a weekend?!" as benefits, which are the benefits much of the developed world already has and doesn't think twice about any more.
  - petesergeant 4y ago
    > where government intervention and threats have given us ... and also tiny interchange fees in the UK and EU: https://www.clearlypayments.com/blog/interchange-fees-by-country/ https://www.clearlypayments.com/blog/interchange-fees-by-cou... Of note: "The USA has the least regulatory oversight resulting in the highest interchange fees in the world. The same data below compares the interchange fee by country in chart form."
- adolph 4y ago
  > How else would you do risk management for loans? Gee, I wish there was a method for two counterparties to record a transaction publicly and pseudo anonymously so that one might be able to display a mathematical proof of satisfactory fulfillment (or not) of an agreement. <ctrl-f blockch: no results> Well, that’s just crazy talk
  - ThunderSizzle 4y ago
    Block chain doesn't solve this problem, it just moves the problem .
- anigbrowl 4y ago
  Here's a paper on how they do it in Afghanistan, absent any reliable banking infrastructure. Islamic finance in general is interesting because it rests on different ethical mores from British-style capitalism, perhaps with a view to limiting pure accumulation. https://www.cambridge.org/core/journals/asian-journal-of-law- https://www.cambridge.org/core/journals/asian-journal-of-law...
- ticviking 4y ago
  By having a local banker who makes risk assessments based on your reputation in the community and history with his bank. Neither are perfect, I prefer privacy but I don’t know what is the socially optimal way to protect privacy and promote investment
- pessimizer 4y ago
  Most countries don't have credit scores, so you can literally just check and see how it is done.
- mola 4y ago
  You can always just keep information about ppl that don't pay their loans, instead of keeping information about ppl who did nothing wrong. This system is hellish.
- weare138 4y ago
  The problem is in the US they're not 'credit bureaus'. They're largely unregulated and unaccountable for-profit private corporations. Couldn't buy a home or had to pay higher interest rates because one of these private credit reporting companies had inaccurate information on your credit report? Well sucks to be you and the credit reporting company is in no way liable for your loss. The fact that Experian, one of the 'big three' credit reporting corporations in the US, is offering to boost your credit score if you install their app is a damning indictment of how misguided and contrived the US credit rating system is.
- courgette 4y ago
  We have loan in France, and not credit score. My understanding is that your income and work contracts are inspected, and that banks can see your other loans / lines of credit. The rule of thumb is that your loans payment must not be above 1/3 of your income. To check your income the bank will ask you for a tax document and pay stubs. People buy house and cars, and the country did not start the sub primes crises in 2008. Seems to work well enough.
  - Nextgrid 4y ago
    Glad to see it still works like that. There's also a government-managed register of bad payers (called "interdit bancaire" - literally "forbidden from banking") for which there's a lengthy process to get onto that may involve court action - the lenders literally have to take you to court. This means there is a due process to get onto the register, and a simple misunderstanding or fraudulent company can't ruin your credit (unless they want to lie to a government official and potentially to a court).
  - Sohcahtoa82 4y ago
    In America, they'll verify your income by requesting pay stubs, but banks can't see your other loans/LoC without doing a credit check from one of the credit reporting bureaus (Equifax, Experian, TransUnion).
    - courgette 4y ago
      That explain things. That’s … silly.
      - Sohcahtoa82 4y ago
        America is a silly place. There's a strong distrust of government across the entire political spectrum. The difference is that one half thinks the solution is to let private corporations handle everything because they have this strange delusion that a corporation actually has their interests in mind beyond the bare minimum to earn a profit. The other half has a delusion that government can be fixed.
- c7b 4y ago
  Switzerland had banking secrecy laws for the longest time (still do to some extent) that prevent this sort of mass collection of payment data. And yet they had a comparable credit / GDP ratio to the US and above the world average [0]. So your claim that one can't do lending without involuntary mass data collection is empirically false. [0] https://data.worldbank.org/indicator/FS.AST.PRVT.GD.ZS?end=2020&locations=US-CH-1W https://data.worldbank.org/indicator/FS.AST.PRVT.GD.ZS?end=2...
- KSteffensen 4y ago
  > Or do we just blend the risk with everyone so if you always paid your loans on time, you pay the same rate as someone who has a loan write off and is 3 months behind in loan payments? This is how it works in Denmark for property mortgages. There is security in the house and up to 80% of the house price can be lent. It's up to the credit institution and bank to decide whether to approve you for the loan based on an expense budget provided by you, pay slips for the past 3 months and the property valuation. Bank provides the contact between you and the credit institution as well as budget vetting, the credit institution sells bonds to investors to raise the money for the mortgage. Risk is spread over the bond series and is carried by the credit institution. We have some of the lowest mortgage rates anywhere. Current 30 year rate is 5%. This is after a huge hike in the last year after having been at 0% or even negative for at least 5 years. So yeah, for large investments like property mortgages with considerable security drop the credit rating and spread the risk across enough people. On average it will be cheaper.
  - sokoloff 4y ago
    That has a side effect of requiring 20% down (after all transaction fees), which means buyers have to save significantly longer than when 3% or 5% down payment loans can be made. This has disadvantages for some people over a credit rating system, even if it’s overall cheaper for the people who can get loans under it.
    - KSteffensen 4y ago
      This also means that you the likelihood of ending up with insurmountable personal debt in case of a default on the mortgage is a lot smaller. In some cases the down payment can be a bank loan at significantly higher rates. I did this for my house and the rate for the down payment loan was something like 8% while mortgage was 2%. I forget what percentage of the total was a bank loan but it was around 10-15%. There are not the same conditions on the bank loan, though. E.g. a bank loan can in theory be called in with a months notice, while this is not the case for the bond based mortgage.
- one_hung_low 4y ago
  Like Dubai for one, you don't pay your bill. You get your ass locked up pimp
PragmaticPulp 4y ago
> Seriously though, how did credit scores come about Consumer demand. If given the choice between a lower rate loan that utilized people’s centrally collected credit history or a higher rate loan that didn’t rely on any centralized organization, the vast majority of people would take the lower rate loan with a credit score. It wouldn’t even be close. The bottom line is that centralized credit reporting is necessary to achieve the lowest rates. The threat of a reduced credit score is necessary to get a lot of people to pay back loans.
- deleted 4y ago
  [deleted]
zetazzed 4y ago
There was a very cool exhibit at the Baker Library at Harvard way back from the archives of Dun an Bradstreet that showed their 19th century version of a credit check product. It was basically just freeform notes about businesspeople like, "Joe is said to be a man of high moral virtue, though it is said that he is often delayed by family matters," or whatever. Super interesting! https://library.harvard.edu/collections/rg-dun-company-credit-reports https://library.harvard.edu/collections/rg-dun-company-credi...
somenewaccount1 4y ago
The entirety of modern American society is built on those scores. You want life without it? Go to a developing country and suffer a life of poverty with few avenues to build your credibility - and likewise, few avenues to escape poverty.

deleted 4y ago

[deleted]

adrr 4y ago

How else would you do risk management for loans? Without credit bureau where would the loan originator determine the risk of the loan? Would each individual be responsible have to store all payments and receipt of payment and submit that? Or do we just blend the risk with everyone so if you always paid your loans on time, you pay the same rate as someone who has a loan write off and is 3 months behind in loan payments?

kneebonian 4y ago
> How else would you do risk management for loans? Without credit bureau where would the loan originator determine the risk of the loan? Would each individual be responsible have to store all payments and receipt of payment and submit that? You act like this is ridiculous but the fact of the matter is that I would prefer that, because ultimately the difference agency in this situation I provide the lender my information that I control, in any other scenario my agency has been taken away by an outside group, whom I may or may not trust. Hell imagine how different everything would be if instead of the Credit Unions working for the lenders I instead paid for a service myself that performed this service for me. The difference being one is done to me the other is done by me.
- mhb 4y ago
  And there's also a middle ground where you could subscribe to a credit agency and own the data which you could have them supply to a potential lender.
  - epicureanideal 4y ago
    Maybe a premium paid credit agency could be a thing?
- PragmaticPulp 4y ago
  > You act like this is ridiculous but the fact of the matter is that I would prefer that, because ultimately the difference agency in this situation I provide the lender my information that I control, in any other scenario my agency has been taken away by an outside group, whom I may or may not trust. This wouldn’t work, because borrowers would only present receipts for credit they repaid on time while withholding information about lines of credit they failed to repay. The point of credit history is that it exposes your past payments or failure to repay. It’s not an equivalent system if borrowers can just conveniently forget to mention the other loans they didn’t repay
  - techsupporter 4y ago
    > It’s not an equivalent system if borrowers can just conveniently forget to mention the other loans they didn’t repay Which is, of course, what we currently have, except it's the businesses who are able to "conveniently forget to mention" instead of the borrowers. I pay myriad bills on time and in full every month, but only three of them--all loans--report my positive payment history to credit bureaus. Yet all of them, from mobile phone providers to landlords to utilities to insurance companies, insisted on being able to look at that payment history. They get the benefit of being able to evaluate me on an incomplete set of data; why shouldn't I get the return? (The answer as always is that we don't have any leverage. Simply saying "well, then don't use those companies" is a non-answer when every company does it the same way and all of them lobby government to keep it that way.)
    - willcipriano 4y ago
      Many places will report a debt to collections but not also send in data that you've been making regular payments.
    - gruez 4y ago
      >Which is, of course, what we currently have, except it's the businesses who are able to "conveniently forget to mention" instead of the borrowers. >I pay myriad bills on time and in full every month, but only three of them--all loans--report my positive payment history to credit bureaus Okay, but the reason for that seems to be due to practicality reasons rather than some sort of concerted effort to oppress consumers. The types of accounts that do get reported to credit agencies (off the top of my head: credit cards, student/car/personal loans, mortgages) have one thing in common: they all have high dollar amounts in at least one of: monthly payment, total owed, and available credit. Being able to stay on top of payments and/or not get into debt spiral provides a much stronger signal about your credit worthiness than you being able to afford the $100/month electric bill. Therefore, bills typically don't get reported, and presumably that's factored in the credit models. After all, the bills that you mention are mostly mandatory (eg. utilities), so it's reasonable to assume that if you don't have any such bills sent to collection, that you got those bills and paid them on time for all of your adult life.
- cortesoft 4y ago
  There is nothing stopping a company from offering credit using this strategy. They don't have to source their credit rating from an existing credit agency. Why would someone want to give credit this way, though? If the rating is provided by a company that is paid by the person requesting credit, why would the company giving credit trust it?
ATMLOTTOBEER 4y ago
I like the current model of risk management, but the problem is that if a bank is defrauded by someone pretending to be you, you’re on the hook. That is, the credit bureau doesn’t do a good enough job verifying identity.
- mhb 4y ago
  And it's completely ridiculous that that isn't entirely the bank's problem and you should be able to sue the credit agency for libel.
  - kmonsen 4y ago
    It’s because they call it identity theft. It’s not the bank getting defrauded but you having your identity stolen. Someone steals $1000 from a bank, they come to you and say hi he said his name was kmonsen so we would like to get the money back from you.
  - sokoloff 4y ago
    The credit agency is reporting what has been reported to them. If credit agency Foo correctly reports that “Bank A has reported to us that mhb is delinquent on their loan”, that’s not libel if the bank did report that and the agency has no reason to believe the underlying fact is untrue. (Once you start the dispute process, they stop saying that for a while until it’s resolved. My mental model is a lot of the dispute process is based on avoiding libel.)
    - mhb 4y ago
      In that case, yes. Not in the case of "identity theft" in which the person is incorrectly authenticated by the credit agency.
      - sokoloff 4y ago
        What does "authenticated" mean in this case? When I apply for credit, the credit is granted by a bank or financial institution. They are the ones responsible for authenticating that I am who I say I am, not the credit agency.
hanoz 4y ago
Well for starters you could voluntarily submit your repayment history to one of a pool of competitive good-for-the-money record keepers, rather than it being involuntarily hoovered up by a state sponsored oligopoly.
- bombcar 4y ago
  That’s basically what you have now - every single reporting agency somewhere in the giant ball of terms and condos states that they’ll report on you to credit burros. You can avoid it by avoiding any of those accounts. Whether that is possible practically is another question.
  - CSMastermind 4y ago
    > Whether that is possible practically is another question. Well it's sort of the key question though right? The incentives of the credit reporting agencies are fundamentally unbalanced because the average consumer has no meaningful input into their behavior. If could practically avoid having my information sent to bad actors they would be incentivized to treat my data with care. This is an example of where good government regulation can be introduced (giving consumers the option to opt out) rather than what I would consider bad government regulation (trying to specify how the companies should behave directly). I believe in the free market but I also understand that there are cases where incentives are incorrectly balanced and we need a neutral party to make sure all incentives are properly accounted for.
    - judge2020 4y ago
      > The incentives of the credit reporting agencies are fundamentally unbalanced because the average consumer has no meaningful input into their behavior. Howso? The lenders are obligated to submit truthful data, and under FCRA you can dispute fraud and incorrect data. And the FICO/Vantage scoring system can be computed from the data, they don't just spit out a hidden number generated by some ML model.
      - 4y ago
heavyset_go 4y ago
Someone else's on-time mortgage payments were reported on my credit score for years after I turned 18. I ended up with amazing credit for it. These companies can't even keep track of what they're purportedly supposed to keep track of, why should they continue to exist as they do today?
- eyelidlessness 4y ago
  I’ve had a few lucky mistakes in my credit favor, but nothing like that! It shouldn’t be surprising that you take such a principled position in light of that, but it is. Good show.
  - heavyset_go 4y ago
    I figure it could have just as easily been a mistake that wasn't in my favor that I'd have to spend years sorting out to my detriment.
- systematical 4y ago
  I've had the opposite experience sort of. A company sold my home loan off as-is common and failed to close the account. They reported me as delinquent to the credit bureau. So I did the thing you are supposed to do, repeatedly contacting mortgage loan fools to inform them my account is in good standing (took three times) and of course filing a dispute with the credit bureaus. After having a credit score north of 700 for over a decade that was at 780 at its peak, my score dropped to around 600. I was horrified. It's been a year and it still hasn't recovered and is currently around 700 through no fault of my own. The only debt I've had since 2018 is home loans. Fuck them all.
  - heavyset_go 4y ago
    That should be criminal, or at least have some civil liability because I'm pretty sure you'd be able to prove damages. Insane that there's little to no recourse for this at all, and that none of the parties responsible for such an error will be held responsible for them.
bombcar 4y ago
You’d have loans that tie back to physical objects that can be repossessed - and the down payments would be large. And if someone fraudulently defaulted you’d pursue criminal charges. It’s totally workable but it would cut consumer spending considerably. You could even still do credit cards - just require them to be backed by the amount in cash.
- russellendicott 4y ago
  This is basically how things used to work. The drawback is that young people with no credit can't build credit easily. You'd be disproportionately favoring those familial lineages with assets and losing out on a huge potential customer pool. With better centralized data it's possible to having something of a win-win where banks get more customers and people can bootstrap their own lending reputation without having the last name "Jones". Of course there's the tradeoff that you have to trust an institution to be a good steward of that data...
  - bee_rider 4y ago
    What would be the negative effects of that drawback? Higher wealth inequality? Increasing age for first time home buyers? The ability to build credit isn’t actually an advantage in and of itself. In most other lines of business, if the business tried to point to “we’ve given you more opportunities to prove yourself a worthy customer” as a perk we’d laugh at them.
    - bombcar 4y ago
      The argument is that advantaged groups (privileged communities) get to build their life on credit and quickly become doctors and lawyers and such, and that denying loans to people who haven't proven the ability to repay (or who do not have people to co-sign) prevents them from getting a leg up on the pile. There's something to it. But what we have seen is that the banks and companies prey on the disadvantaged people pretty effectively; note the absolute magnitude of student loans given to poor students for degrees that don't show a practical repayment opportunity. And there's also the argument that easy access to very-low interest rate credit precisely is what is causing house prices to be so astronomically high - if credit isn't as available. The overall practical result would be an increase in the cost of credit and a slowing of the economy. Disadvantaged groups could be assisted in other ways, however; the way we try to do it is not necessarily the only possible way.
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jawns 4y ago
One novel method that auto insurers have been experimenting with is voluntarily reporting data that can only help, not hurt. So, for instance, if you install their monitoring device in your vehicle and it shows that you don't drive in risky ways, you qualify for a discount. If you choose not to volunteer this data, or the data shows that you're a risky driver, you pay the base rate. Now, is that really "volunteering" the data, or do you end in up roughly the same position as with the credit bureaus, where you need to turn over lots of personal information to get reasonable rates? I think reasonable people can disagree about that.
- TylerE 4y ago
  Careful. What seems to really happen is they jack the base rate up a bit, and their threshold for safe driving is “never speed, at all, or use more than 10% throttle or 25% brake”
- eyelidlessness 4y ago
  This works for things like car insurance because most people aren’t driving secretly insured cars they don’t tell other insurers about, and because many of the factors determining your car insurance rate are cited by the state. It could work for loans too, but it’d require creating a state agency which… well, I decided not to post that surely unpopular opinion.
- toast0 4y ago
  > One novel method that auto insurers have been experimenting with is voluntarily reporting data that can only help, not hurt. So, for instance, if you install their monitoring device in your vehicle and it shows that you don't drive in risky ways, you qualify for a discount. If you choose not to volunteer this data, or the data shows that you're a risky driver, you pay the base rate. How is this help, not hurt? Insurers are tightly regulated in most states, and the sum of the premiums for a group can't be mlre than the losses for that group plus an allowed profit margin. If you give someone else in my group a discount, that's coming out of my pocket in some form or other. (Of course, if the discount encourages them to drive in a way that reduces losses, that could be money going into my pocket too; either way, I'm not letting them snoop on me, thanks)
oneoff786 4y ago
If credit bureaus were only a public record of your debt and payments they would not be such an issue.
twelve40 4y ago
you _could_ do it Plaid-style, where you consent to share your history (either raw transactions and liabilities to run through a model, or a pre-calculated score) with a potential creditor. That would solve the formal consent problem. But the essence of it is the same: unfortunately, you have to furnish your verified history to every creditor rando if you want their money.
- judge2020 4y ago
  Also, they can't really verify what you give them. Income verification is already "hopefully they aren't lying" for low-risk credit cards and "we have to call their employer to verify this income" for high-risk loans like housing loans. Verifying this amongst dozens of auto loan departments and credit card operations, likely with different hours of operation, would be extremely labor intensive which is why everyone gets to pull applicant credit history from a central database to determine creditworthiness if they also contribute to that database.
- readonlybarbie 4y ago
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tverbeure 4y ago
Here's how they do it in Belgium: https://finance.yahoo.com/news/belgium-deals-credit-without-equifax-experian-transunion-114323975.html https://finance.yahoo.com/news/belgium-deals-credit-without-.... They have a public credit bureau hosted by the national bank that records all the loans and credit. The data is not for sale to just about any company that is willing to pay for it, the individual has to give permission to share it when they apply for a loan. There isn't such bullshit as in the US where you practically have to push your student to get a credit card "to start building up a credit score." The system works well enough that there's hardly any debate about it.
- gruez 4y ago
  >They have a public credit bureau hosted by the national bank that records all the loans and credit. So basically the same as credit bureaus in the US, but it's a government monopoly? Given how well other government agencies work at least in the US (eg. DMV), I'm skeptical that waving a "government" wand would magically fix stuff. >The data is not for sale to just about any company that is willing to pay for it, the individual has to give permission to share it when they apply for a loan AFAIK that's also the case in the US. When you open a bank account/apply for a credit card, somewhere buried in the terms and conditions is a consent for a credit check. >There isn't such bullshit as in the US where you practically have to push your student to get a credit card "to start building up a credit score." In the US at least, the reason why it's commonly advised for students (and other young adults) to "build credit" is to build up a history of credit usage and repayments. I don't see why the same dynamic wouldn't exist in Belgium. Your own linked article says "Later, it added positive marks as well, allowing “no credit” and “good credit” to be distinguished", which suggests the same dynamic would exist in Belgium.
  - Semaphor 4y ago
    I can only speak of Germany, where we have the equifax-like SCHUFA. > somewhere buried in the terms and conditions is a consent for a credit check. That’s luckily not allowed (as many other burial tactics) and has to be very visible and explicit. Though in the end that doesn’t change much because it’s not as if you have a choice (outside of saying no thanks to the whole thing) > which suggests the same dynamic would exist in Belgium. It doesn’t in Germany. If they don’t know you at all (= no contact with the banking system whatsoever), you are rated higher risk, but just having a bank account for some time is enough to have a good score. Until data protection laws came along, they even charged you to see your own data, nowadays at least you get it free once per year. IMO the biggest differences are the lack of having to "build credit", the incidental lack of an SSN that can be leaked, and the lack of companies allowing someone to wrongly take out a loan in your name and somehow making it your issue instead of theirs.
petesergeant 4y ago
> How else would you do risk management for loans? Government-run credit-bureau, like Thailand's National Credit Bureau (NCB), that isn't trying to make a buck. Bank of Thailand (who are behind NCB) is also responsible for Prompt Pay, which is a most-excellent and ubiquitous QR-code and cell-number based instant payment system. American retail banking appears to have been screwed hard by "leaving it to the markets", where government intervention and threats have given us Faster Payments (UK), SEPA Instant (EU), Prompt Pay (TH) etc
- davchana 4y ago
  To add, the quick payment interface of India, UPI. Unified Payment Interface. Central Bank defined the rules. Every bank follows it. Money still gets settled as regular in behind the scenes, but on front end, customer sees money moving instantly, no fees. Money moves between super verified accounts or customers only.
- gruez 4y ago
  >American retail banking appears to have been screwed hard by "leaving it to the markets", where government intervention and threats have given us Faster Payments (UK), SEPA Instant (EU), Prompt Pay (TH) etc Looking at this comparison table[1], it seems like the options in the US (Zelle and RTP) arrived in similar timeframes to RT1 in the EU? [1] https://en.wikipedia.org/wiki/Instant_payment https://en.wikipedia.org/wiki/Instant_payment
  - petesergeant 4y ago
    Why am I still receiving ACH and e-check payments from my clients then? Genuinely, I don't know the answer to this -- maybe the US account Wise provides me with is limited? Additionally, every time a Bitcoin maximalist shows up, if they're American they'll tout "fast, cheap payments!" and "right, but what if you wanted to make a transfer to a different bank AND on a weekend?!" as benefits, which are the benefits much of the developed world already has and doesn't think twice about any more.
- petesergeant 4y ago
  > where government intervention and threats have given us ... and also tiny interchange fees in the UK and EU: https://www.clearlypayments.com/blog/interchange-fees-by-country/ https://www.clearlypayments.com/blog/interchange-fees-by-cou... Of note: "The USA has the least regulatory oversight resulting in the highest interchange fees in the world. The same data below compares the interchange fee by country in chart form."
adolph 4y ago
> How else would you do risk management for loans? Gee, I wish there was a method for two counterparties to record a transaction publicly and pseudo anonymously so that one might be able to display a mathematical proof of satisfactory fulfillment (or not) of an agreement. <ctrl-f blockch: no results> Well, that’s just crazy talk
- ThunderSizzle 4y ago
  Block chain doesn't solve this problem, it just moves the problem .
anigbrowl 4y ago
Here's a paper on how they do it in Afghanistan, absent any reliable banking infrastructure. Islamic finance in general is interesting because it rests on different ethical mores from British-style capitalism, perhaps with a view to limiting pure accumulation. https://www.cambridge.org/core/journals/asian-journal-of-law- https://www.cambridge.org/core/journals/asian-journal-of-law...
ticviking 4y ago
By having a local banker who makes risk assessments based on your reputation in the community and history with his bank. Neither are perfect, I prefer privacy but I don’t know what is the socially optimal way to protect privacy and promote investment
pessimizer 4y ago
Most countries don't have credit scores, so you can literally just check and see how it is done.
mola 4y ago
You can always just keep information about ppl that don't pay their loans, instead of keeping information about ppl who did nothing wrong. This system is hellish.
weare138 4y ago
The problem is in the US they're not 'credit bureaus'. They're largely unregulated and unaccountable for-profit private corporations. Couldn't buy a home or had to pay higher interest rates because one of these private credit reporting companies had inaccurate information on your credit report? Well sucks to be you and the credit reporting company is in no way liable for your loss. The fact that Experian, one of the 'big three' credit reporting corporations in the US, is offering to boost your credit score if you install their app is a damning indictment of how misguided and contrived the US credit rating system is.
courgette 4y ago
We have loan in France, and not credit score. My understanding is that your income and work contracts are inspected, and that banks can see your other loans / lines of credit. The rule of thumb is that your loans payment must not be above 1/3 of your income. To check your income the bank will ask you for a tax document and pay stubs. People buy house and cars, and the country did not start the sub primes crises in 2008. Seems to work well enough.
- Nextgrid 4y ago
  Glad to see it still works like that. There's also a government-managed register of bad payers (called "interdit bancaire" - literally "forbidden from banking") for which there's a lengthy process to get onto that may involve court action - the lenders literally have to take you to court. This means there is a due process to get onto the register, and a simple misunderstanding or fraudulent company can't ruin your credit (unless they want to lie to a government official and potentially to a court).
- Sohcahtoa82 4y ago
  In America, they'll verify your income by requesting pay stubs, but banks can't see your other loans/LoC without doing a credit check from one of the credit reporting bureaus (Equifax, Experian, TransUnion).
  - courgette 4y ago
    That explain things. That’s … silly.
    - Sohcahtoa82 4y ago
      America is a silly place. There's a strong distrust of government across the entire political spectrum. The difference is that one half thinks the solution is to let private corporations handle everything because they have this strange delusion that a corporation actually has their interests in mind beyond the bare minimum to earn a profit. The other half has a delusion that government can be fixed.
c7b 4y ago
Switzerland had banking secrecy laws for the longest time (still do to some extent) that prevent this sort of mass collection of payment data. And yet they had a comparable credit / GDP ratio to the US and above the world average [0]. So your claim that one can't do lending without involuntary mass data collection is empirically false. [0] https://data.worldbank.org/indicator/FS.AST.PRVT.GD.ZS?end=2020&locations=US-CH-1W https://data.worldbank.org/indicator/FS.AST.PRVT.GD.ZS?end=2...
KSteffensen 4y ago
> Or do we just blend the risk with everyone so if you always paid your loans on time, you pay the same rate as someone who has a loan write off and is 3 months behind in loan payments? This is how it works in Denmark for property mortgages. There is security in the house and up to 80% of the house price can be lent. It's up to the credit institution and bank to decide whether to approve you for the loan based on an expense budget provided by you, pay slips for the past 3 months and the property valuation. Bank provides the contact between you and the credit institution as well as budget vetting, the credit institution sells bonds to investors to raise the money for the mortgage. Risk is spread over the bond series and is carried by the credit institution. We have some of the lowest mortgage rates anywhere. Current 30 year rate is 5%. This is after a huge hike in the last year after having been at 0% or even negative for at least 5 years. So yeah, for large investments like property mortgages with considerable security drop the credit rating and spread the risk across enough people. On average it will be cheaper.
- sokoloff 4y ago
  That has a side effect of requiring 20% down (after all transaction fees), which means buyers have to save significantly longer than when 3% or 5% down payment loans can be made. This has disadvantages for some people over a credit rating system, even if it’s overall cheaper for the people who can get loans under it.
  - KSteffensen 4y ago
    This also means that you the likelihood of ending up with insurmountable personal debt in case of a default on the mortgage is a lot smaller. In some cases the down payment can be a bank loan at significantly higher rates. I did this for my house and the rate for the down payment loan was something like 8% while mortgage was 2%. I forget what percentage of the total was a bank loan but it was around 10-15%. There are not the same conditions on the bank loan, though. E.g. a bank loan can in theory be called in with a months notice, while this is not the case for the bond based mortgage.
one_hung_low 4y ago
Like Dubai for one, you don't pay your bill. You get your ass locked up pimp

PragmaticPulp 4y ago

> Seriously though, how did credit scores come about Consumer demand. If given the choice between a lower rate loan that utilized people’s centrally collected credit history or a higher rate loan that didn’t rely on any centralized organization, the vast majority of people would take the lower rate loan with a credit score. It wouldn’t even be close. The bottom line is that centralized credit reporting is necessary to achieve the lowest rates. The threat of a reduced credit score is necessary to get a lot of people to pay back loans.

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zetazzed 4y ago

There was a very cool exhibit at the Baker Library at Harvard way back from the archives of Dun an Bradstreet that showed their 19th century version of a credit check product. It was basically just freeform notes about businesspeople like, "Joe is said to be a man of high moral virtue, though it is said that he is often delayed by family matters," or whatever. Super interesting! https://library.harvard.edu/collections/rg-dun-company-credit-reports https://library.harvard.edu/collections/rg-dun-company-credi...

somenewaccount1 4y ago

The entirety of modern American society is built on those scores. You want life without it? Go to a developing country and suffer a life of poverty with few avenues to build your credibility - and likewise, few avenues to escape poverty.