4 ms·

What exactly is wrong with that? How else would you expect to quantify the risk of lending money to some foreign individual? Without such a score, the result is

by xwdv 3y ago

What exactly is wrong with that? How else would you expect to quantify the risk of lending money to some foreign individual? Without such a score, the result is simple: you don’t lend money. If the score can includes factors that increase the odds of positive ROI, that is better for the lender. There is no incentive to make a “biased” score as that would create a market opportunity for someone else. Scores are built to whatever is allowed by regulation or lack thereof.

withinboredom 3y ago
Or, (how it works here), I show them my employment contract and they look at my current debts. If the income:debt ratio is too risky for them ... they say no. It's a bit more invasive for other forms of income (foreign/capital gains/self-employment) in that they want to see bank statements for the last three years and take the average amount coming in as you income. There are no magic scores, or hidden factors. It's just, 'can you afford to feed yourself and pay your mortgage if you buy this house.'
- dnissley 3y ago
  This seems like semantics. Presumably they're taking these factors and putting them into some kind of calculation which probably outputs something like a... score. Maybe what you are criticizing is a particular input in that calculation? I notice you don't mention repayment of past debts, for example.
  - ohgodplsno 3y ago
    That score doesn't follow you your whole life. There are some files in many countries that list failures to pay off debts, but their access is extremely controlled and subject to verification. My "credit score" exists for 30 minutes while my bank gets my proof of income and ID, and that's it. In the same way, my landlord does not get access to any of these files, because it's none of his business. It is illegal to keep track of individuals like this. In the US, this incentivizes keeping individuals in poverty, and its ease of access means that it is easy for any predatory lending institution to explicitly target people with low credit scores. It creates de facto castes.
    - dnissley 3y ago
      What do you make of these findings? https://www.federalreserve.gov/econres/notes/feds-notes/are-income-and-credit-scores-highly-correlated-20180813.html https://www.federalreserve.gov/econres/notes/feds-notes/are-... As shown in the three panels, credit scores are distributed over the entire support for all three income groups, and, apart from the distribution of the high-income group having a larger mass at the high end of the distribution support, the shapes of the histograms of high- and middle-income groups are broadly consistent. Indeed, even among the high-income consumers, a significant mass of consumers have credit scores lower than 680, commonly known as "nonprime" or "subprime" borrowers.
      - ohgodplsno 3y ago
        That it doesn't matter if Johnny-seven-figures has a bad credit score. It's a non issue to him. Booh hoo he can't borrow to buy a Bugatti Veryon. The lower your income, the worse a credit score affects you. It's reverse means testing, where a bad credit score means you get into loans with higher interest rates which you cannot repay, which gets you worse rates that you cannot repay, etc.
    - epcoa 3y ago
      > That score doesn't follow you your whole life. Nor does any score in the US - none of the inputs, even bankruptcy, last more than several years. > In the same way, my landlord does not get access to any of these files, because it's none of his business Your reliability in paying definitely seems like it would be their business. > In the US, this incentivizes keeping individuals in poverty This is not supported by the data.
      - withinboredom 3y ago
        > Nor does any score in the US Hahahaha, that's a fantasy. I got in a motorcycle accident at 18, and had to learn to walk again. You know what I couldn't do during that time? Pay my bills because I couldn't work. You know what I can't get despite making six figures these days? A decent credit card, a car, or a house. I have to pay cash, because going bankrupt at the literal beginning of your life, follows you for life. Sure, the inputs are gone, but the evidence is there. When you go bankrupt and finally get back on your feet and can get credit again, there are only certain types of credit you can get. Eventually, the original negative inputs go away, but the types of credit still tell the same story. It can take decades before you are able to wipe away most of the evidence and get treated with some modicum of trust.
- xwdv 3y ago
  Can you? Sure. Will you? We don’t know. It’s not unheard of for people to make lots of money and also avoid paying debts. And thus we need to know your payment history. Similarly, even if you have a poor debt to income ratio, it might not matter much if you have a long history of always paying your debts on time no matter what. And that’s how poor people get to have nice things.
matheusmoreira 3y ago
> the result is simple: you don’t lend money Sounds great. The lending of money is the root cause of so many of modern society's ills.
- WalterBright 3y ago
  > The lending of money is the root cause of so many of modern society's ills. There have been many attempts to ban lending. The result is always a fairly non-functioning economy. For example, in most businesses, there is a disconnect between when the payroll must be paid, and accounts receivable get paid. This disconnect is taken care of by having a line of credit. You pay the payroll on credit, and pay off the credit when accounts receivable get paid.
  - matheusmoreira 3y ago
    Alternative: maintain a reserve of money so that you can honor your obligations on time. People hate that because they can't stand to watch a pile of money just sitting there doing nothing. No, they just have to "efficiently allocate" that money no matter what.
    - WalterBright 3y ago
      What's ironic about your statement is most people who dislike capitalism complain about rich people "hoarding" money, and that money should be "liberated" and put to use. You, on the other hand, want rich people to hoard money.
      - matheusmoreira 3y ago
        > that money should be "liberated" and put to use The money is not really liberated, it is duplicated. When that money is put to use by lending it out, it literally creates new money out of nothing. There's money in your account and that same money is simultaneously lent out to others. This massively inflates the money supply, devaluing the currency. Printing of currency is insignificant next to the power of loans. It's why things like startups are a low interest rate phenomenon and I wouldn't be surprised if it was the real reason why there were massive layoffs the second the US federal reserve raised interest rates: less loans means less free money for corporations to spend. > You, on the other hand, want rich people to hoard money. Of course. I too would like to be able to hoard money. Right now it would be irrational to do so since it would be inflated away to zero. We should all be able to simply amass wealth without having to perpetually chase investments to protect against the inflation caused by the sheer existence of those same investments.
anigbrowl 3y ago
People still lend money even in the absence of centralized credit scoring systems, for example in Afghanistan: https://www.cambridge.org/core/journals/asian-journal-of-law-and-society/article/abs/regulation-of-informal-trade-credit-ograyi-in-afghanistan/B5D1B3ECCEDF097331D39859E3A368B2 https://www.cambridge.org/core/journals/asian-journal-of-law...
whimsicalism 3y ago
Because there are lots of factors that are unjust as criterion for moneylending. (This is how you get redlining, for instance). For instance, if people in location X tend to be bad at paying back their loans, I still don't think it should be legal to purchase location data from some weather app and then incorporate the amount of time someone's phone spends in location X into some creditworthiness score. One might argue that allowing this practice makes credit more accessible for everyone else because we don't have to comingle with all the people in location X, but I still think it should be a prohibited practice (and it is - in the US). In developing countries with little regulatory sophistication, the law is simply not ready to deal with these things - they are busy dealing with murders, drug dealing, etc., not consumer finance.
- xwdv 3y ago
  You state that it makes credit more accessible to everyone else yet don’t really cite any reason why discrimination based on location is inherently bad. The truth is it isn’t. Anything that helps the lender feel they are reducing their risk in lending will allow them to accept lower interest rates. Of course, for a person that has no choice but to be in location X, this sucks as the data will suggest lending money to them at a higher rate due to greater perceived risk, but it’s tough to argue with data.
  - Thiez 3y ago
    You realize location can easily be a proxy for protected classes such as race? And suppose a location has been found with above average risk. To compensate, we increase interest rates in that area... making it more likely that people are unable to repay their loans, making the area more risky, increasing interest rates... the risk estimation algorithm essentially becomes part of enforcing and maintaining existing economic inequality.
    - whimsicalism 3y ago
      I suspect that they do not care, given the hardline stance they are taking.

by xwdv 3y ago

withinboredom 3y ago

Or, (how it works here), I show them my employment contract and they look at my current debts. If the income:debt ratio is too risky for them ... they say no. It's a bit more invasive for other forms of income (foreign/capital gains/self-employment) in that they want to see bank statements for the last three years and take the average amount coming in as you income. There are no magic scores, or hidden factors. It's just, 'can you afford to feed yourself and pay your mortgage if you buy this house.'

dnissley 3y ago
This seems like semantics. Presumably they're taking these factors and putting them into some kind of calculation which probably outputs something like a... score. Maybe what you are criticizing is a particular input in that calculation? I notice you don't mention repayment of past debts, for example.
- ohgodplsno 3y ago
  That score doesn't follow you your whole life. There are some files in many countries that list failures to pay off debts, but their access is extremely controlled and subject to verification. My "credit score" exists for 30 minutes while my bank gets my proof of income and ID, and that's it. In the same way, my landlord does not get access to any of these files, because it's none of his business. It is illegal to keep track of individuals like this. In the US, this incentivizes keeping individuals in poverty, and its ease of access means that it is easy for any predatory lending institution to explicitly target people with low credit scores. It creates de facto castes.
  - dnissley 3y ago
    What do you make of these findings? https://www.federalreserve.gov/econres/notes/feds-notes/are-income-and-credit-scores-highly-correlated-20180813.html https://www.federalreserve.gov/econres/notes/feds-notes/are-... As shown in the three panels, credit scores are distributed over the entire support for all three income groups, and, apart from the distribution of the high-income group having a larger mass at the high end of the distribution support, the shapes of the histograms of high- and middle-income groups are broadly consistent. Indeed, even among the high-income consumers, a significant mass of consumers have credit scores lower than 680, commonly known as "nonprime" or "subprime" borrowers.
    - ohgodplsno 3y ago
      That it doesn't matter if Johnny-seven-figures has a bad credit score. It's a non issue to him. Booh hoo he can't borrow to buy a Bugatti Veryon. The lower your income, the worse a credit score affects you. It's reverse means testing, where a bad credit score means you get into loans with higher interest rates which you cannot repay, which gets you worse rates that you cannot repay, etc.
  - epcoa 3y ago
    > That score doesn't follow you your whole life. Nor does any score in the US - none of the inputs, even bankruptcy, last more than several years. > In the same way, my landlord does not get access to any of these files, because it's none of his business Your reliability in paying definitely seems like it would be their business. > In the US, this incentivizes keeping individuals in poverty This is not supported by the data.
    - withinboredom 3y ago
      > Nor does any score in the US Hahahaha, that's a fantasy. I got in a motorcycle accident at 18, and had to learn to walk again. You know what I couldn't do during that time? Pay my bills because I couldn't work. You know what I can't get despite making six figures these days? A decent credit card, a car, or a house. I have to pay cash, because going bankrupt at the literal beginning of your life, follows you for life. Sure, the inputs are gone, but the evidence is there. When you go bankrupt and finally get back on your feet and can get credit again, there are only certain types of credit you can get. Eventually, the original negative inputs go away, but the types of credit still tell the same story. It can take decades before you are able to wipe away most of the evidence and get treated with some modicum of trust.
xwdv 3y ago
Can you? Sure. Will you? We don’t know. It’s not unheard of for people to make lots of money and also avoid paying debts. And thus we need to know your payment history. Similarly, even if you have a poor debt to income ratio, it might not matter much if you have a long history of always paying your debts on time no matter what. And that’s how poor people get to have nice things.

matheusmoreira 3y ago

> the result is simple: you don’t lend money Sounds great. The lending of money is the root cause of so many of modern society's ills.

WalterBright 3y ago
> The lending of money is the root cause of so many of modern society's ills. There have been many attempts to ban lending. The result is always a fairly non-functioning economy. For example, in most businesses, there is a disconnect between when the payroll must be paid, and accounts receivable get paid. This disconnect is taken care of by having a line of credit. You pay the payroll on credit, and pay off the credit when accounts receivable get paid.
- matheusmoreira 3y ago
  Alternative: maintain a reserve of money so that you can honor your obligations on time. People hate that because they can't stand to watch a pile of money just sitting there doing nothing. No, they just have to "efficiently allocate" that money no matter what.
  - WalterBright 3y ago
    What's ironic about your statement is most people who dislike capitalism complain about rich people "hoarding" money, and that money should be "liberated" and put to use. You, on the other hand, want rich people to hoard money.
    - matheusmoreira 3y ago
      > that money should be "liberated" and put to use The money is not really liberated, it is duplicated. When that money is put to use by lending it out, it literally creates new money out of nothing. There's money in your account and that same money is simultaneously lent out to others. This massively inflates the money supply, devaluing the currency. Printing of currency is insignificant next to the power of loans. It's why things like startups are a low interest rate phenomenon and I wouldn't be surprised if it was the real reason why there were massive layoffs the second the US federal reserve raised interest rates: less loans means less free money for corporations to spend. > You, on the other hand, want rich people to hoard money. Of course. I too would like to be able to hoard money. Right now it would be irrational to do so since it would be inflated away to zero. We should all be able to simply amass wealth without having to perpetually chase investments to protect against the inflation caused by the sheer existence of those same investments.

anigbrowl 3y ago

People still lend money even in the absence of centralized credit scoring systems, for example in Afghanistan: https://www.cambridge.org/core/journals/asian-journal-of-law-and-society/article/abs/regulation-of-informal-trade-credit-ograyi-in-afghanistan/B5D1B3ECCEDF097331D39859E3A368B2 https://www.cambridge.org/core/journals/asian-journal-of-law...

whimsicalism 3y ago

Because there are lots of factors that are unjust as criterion for moneylending. (This is how you get redlining, for instance). For instance, if people in location X tend to be bad at paying back their loans, I still don't think it should be legal to purchase location data from some weather app and then incorporate the amount of time someone's phone spends in location X into some creditworthiness score. One might argue that allowing this practice makes credit more accessible for everyone else because we don't have to comingle with all the people in location X, but I still think it should be a prohibited practice (and it is - in the US). In developing countries with little regulatory sophistication, the law is simply not ready to deal with these things - they are busy dealing with murders, drug dealing, etc., not consumer finance.

xwdv 3y ago
You state that it makes credit more accessible to everyone else yet don’t really cite any reason why discrimination based on location is inherently bad. The truth is it isn’t. Anything that helps the lender feel they are reducing their risk in lending will allow them to accept lower interest rates. Of course, for a person that has no choice but to be in location X, this sucks as the data will suggest lending money to them at a higher rate due to greater perceived risk, but it’s tough to argue with data.
- Thiez 3y ago
  You realize location can easily be a proxy for protected classes such as race? And suppose a location has been found with above average risk. To compensate, we increase interest rates in that area... making it more likely that people are unable to repay their loans, making the area more risky, increasing interest rates... the risk estimation algorithm essentially becomes part of enforcing and maintaining existing economic inequality.
  - whimsicalism 3y ago
    I suspect that they do not care, given the hardline stance they are taking.