7 ms·

> Should credit bureaus also be illegal? I didn't realize there were many people defending credit scores. I mean yeah, I would just assume they should be ille

> Should credit bureaus also be illegal? I didn't realize there were many people defending credit scores. I mean yeah, I would just assume they should be illegal. At least in their current opaque form where it's impossible to contest or even get someone to explain your score to you.

bloppe 2y ago
Without credit scores, it would be impossible to get loans or a mortgage. I think a lot of people would be pretty bummed about that.
- bee_rider 2y ago
  The scores were only invented in the 80’s. But anyway, I wonder what the housing market would do if mortgages weren’t possible to get. I bet the prices would go down.
  - bloppe 2y ago
    https://en.wikipedia.org/wiki/Credit_bureau#History https://en.wikipedia.org/wiki/Credit_bureau#History "Following the Panic of 1837, the first commercial credit reporting organizations formed." It only took a financial crisis and 3-year-long depression for people to realize that credit is important.
  - pmontra 2y ago
    It is possible that prices would go down but that will be an incentive to rent instead of selling. So less houses on the market. That could keep the prices up. And no matter how low the price is, if people have no savings and no credit even one year worth of salary would be too much of a price. The combination of all those factors could lead to a final state of a lot of houses owned by companies and a few extremely wealth people. Everybody else would be paying a rent.
- MegaButts 2y ago
  You could have credit scores that are designed to help people instead of the current mess where nobody can even tell you how it's calculated. The concept of a credit score is very different from what we have implemented in the United States. There's effectively zero transparency into how it works.
  - bloppe 2y ago
    That's fair. I just think saying "credit reporting should be illegal" is throwing the baby out with the bath water.
    - plufz 2y ago
      Which countries use credit scores? I didn’t know it was a widespread thing, I always thought it was an American deviation. Here in Sweden we don’t have it. When you apply for a new loan the bank can request information of other debts you have. And you have to send info about your income and answer questions about your expenses (living costs, number of children living at home, etc).
      - zyberzero 2y ago
        We do have credit scoring, but I don’t think it is in the same sense as in the US though. If you look at ”your” UC (for example using the app Kreddy) you will get a credit score back.
      - briandear 2y ago
        Doesn’t that create a de facto credit score?
- gmueckl 2y ago
  Well, I come from a country without credit scores and I was able to get loans there. It was much easier than getting a loan in the US. Credit scores are a pretty bad system, all things considered.
  - bloppe 2y ago
    I'd love to learn more about this loan system. Do you mind if I ask which country that is?
    - afloatboat 2y ago
      I got a loan for a house 2 years ago. The process included showing our 3 last pay slips, the expected cost of the house (new build) and showing the bank how much money we had in our accounts (I loaned at a different bank that gave me better rates). There was a base percentage that lowered based on your level of income and the ratio of own contribution/loaned amount. I live in a Central European country.
      - jisnsm 2y ago
        So, credit score with extra steps, and no rewards (lower interests) for people who could prove that they are solvent and responsible with money.
        LunaSea 2y ago
        Well interest rates are lower in Europe than the US. The other advantage over credit scores is that people willingly give their information out and are able to understand the banks decision.
        TeMPOraL 2y ago
        > and no rewards (lower interests) for people who could prove that they are solvent and responsible with money. That's really what's driving support for credit scores, isn't it? That they provide some some people the (perception of an) ability to prove their character, their moral superiority, and to feel rewarded for all their hard sacrifices. Similar, I believe, to credit cards and all those rewards and air miles shenanigans - everyone feels they're gonna be winners, so they support a private tax on everyone.
- easywood 2y ago
  I can assure you there are countries where a credit score does not exists, and people absolutely get loans and mortgages.
- BrenBarn 2y ago
  It's only "impossible" because of assumptions built into the current system.
- pineaux 2y ago
  As a counterpoint: Most countries in Europe don't really have credit scores, but mortgages still exist. We even balk at the idea of needing to take on debt to show you are good for it.
- fmbb 2y ago
  Do you really believe creditors would just leave all that interest money on the table?
- szundi 2y ago
  By, in my European country banks just check you up and you get your loan.
- padjo 2y ago
  This is great example of how people struggle to see possibilities beyond the environment they’re raised in. The credit score system is not necessary to have loans and mortgages, as evidenced by all the countries that don’t have such a system. The notion that you have to take on debt to “build up your score” is particularly absurd nonsense to most non Americans
- CalRobert 2y ago
  I just got a mortgage here in the Netherlands. No credit score.
scarab92 2y ago
A large component of interest rates is a risk premium that depends on the likelihood of a borrower defaulting. Credit scoring significantly outperforms any other methodology for assessing default risk, including credit matricies and especially human assessments (humans are shockingly bad at assessing default risk, rarely much better than a biased coin flip). It's all well and good to say we should get rid of credit scores, but because they are so much more effective at assessing default risk than other methods, the consequence will be significantly higher rates of default, which means more people in financial hardship, and higher interest rates generally (though especially to low risk borrowers who will now be assessed as having closer-to-average default risk) It's also not often appreciated, but credit scoring is also the single best technique we have to stop people borrowing beyond their means and entering into financial hardship and debt spirals. There are other techniques that exist to identify at-risk borrowers but these alone aren't as good as an approach which also incorporates credit scores. As for explainability, unfortunately the best credit models are trained using AI techniques, which results in low explainability (since the risk signals are complex and multivariate). Older GLM approaches can be used, but aren't as good, so if we want high explainability, the trade off is worse performing credit models, and thus higher borrowing costs.
- immibis 2y ago
  Can this function only be performed in secret or is it possible for this to be transparent and still work?
  - scarab92 2y ago
    The challenge would be that there isn't just one "credit score". The scores published by bureau's exist more for marketing and as a stick to improve consumer behaviour. A credit bureau's real product is the credit file, which contains your history of inquiries, defaults, collections, court judgements etc. In some countries it also includes granular payment history information. From this file, many lenders compute their own internal credit scores. They do this because the credit scores published by the bureaus are the likelihood to default on any loan, however in practice consumers are often more likely to default on certain types of debt than others. Also, many lenders have additional data points that can be considered which the bureau's don't capture, such as the structure of the loan. If there's anything questionable going on (e.g. using variables which act as proxies for factors prohibited by ECOA or FHA) it will be occuring in these proprietary lender-specific models, however the parameters used in these models also embed commercial sensitive information about the behaviour of their customer base, so I doubt many lenders will be keen to release them.

bloppe 2y ago

Without credit scores, it would be impossible to get loans or a mortgage. I think a lot of people would be pretty bummed about that.

bee_rider 2y ago
The scores were only invented in the 80’s. But anyway, I wonder what the housing market would do if mortgages weren’t possible to get. I bet the prices would go down.
- bloppe 2y ago
  https://en.wikipedia.org/wiki/Credit_bureau#History https://en.wikipedia.org/wiki/Credit_bureau#History "Following the Panic of 1837, the first commercial credit reporting organizations formed." It only took a financial crisis and 3-year-long depression for people to realize that credit is important.
- pmontra 2y ago
  It is possible that prices would go down but that will be an incentive to rent instead of selling. So less houses on the market. That could keep the prices up. And no matter how low the price is, if people have no savings and no credit even one year worth of salary would be too much of a price. The combination of all those factors could lead to a final state of a lot of houses owned by companies and a few extremely wealth people. Everybody else would be paying a rent.
MegaButts 2y ago
You could have credit scores that are designed to help people instead of the current mess where nobody can even tell you how it's calculated. The concept of a credit score is very different from what we have implemented in the United States. There's effectively zero transparency into how it works.
- bloppe 2y ago
  That's fair. I just think saying "credit reporting should be illegal" is throwing the baby out with the bath water.
  - plufz 2y ago
    Which countries use credit scores? I didn’t know it was a widespread thing, I always thought it was an American deviation. Here in Sweden we don’t have it. When you apply for a new loan the bank can request information of other debts you have. And you have to send info about your income and answer questions about your expenses (living costs, number of children living at home, etc).
    - zyberzero 2y ago
      We do have credit scoring, but I don’t think it is in the same sense as in the US though. If you look at ”your” UC (for example using the app Kreddy) you will get a credit score back.
    - briandear 2y ago
      Doesn’t that create a de facto credit score?
gmueckl 2y ago
Well, I come from a country without credit scores and I was able to get loans there. It was much easier than getting a loan in the US. Credit scores are a pretty bad system, all things considered.
- bloppe 2y ago
  I'd love to learn more about this loan system. Do you mind if I ask which country that is?
  - afloatboat 2y ago
    I got a loan for a house 2 years ago. The process included showing our 3 last pay slips, the expected cost of the house (new build) and showing the bank how much money we had in our accounts (I loaned at a different bank that gave me better rates). There was a base percentage that lowered based on your level of income and the ratio of own contribution/loaned amount. I live in a Central European country.
    - jisnsm 2y ago
      So, credit score with extra steps, and no rewards (lower interests) for people who could prove that they are solvent and responsible with money.
      - LunaSea 2y ago
        Well interest rates are lower in Europe than the US. The other advantage over credit scores is that people willingly give their information out and are able to understand the banks decision.
      - TeMPOraL 2y ago
        > and no rewards (lower interests) for people who could prove that they are solvent and responsible with money. That's really what's driving support for credit scores, isn't it? That they provide some some people the (perception of an) ability to prove their character, their moral superiority, and to feel rewarded for all their hard sacrifices. Similar, I believe, to credit cards and all those rewards and air miles shenanigans - everyone feels they're gonna be winners, so they support a private tax on everyone.
easywood 2y ago
I can assure you there are countries where a credit score does not exists, and people absolutely get loans and mortgages.
BrenBarn 2y ago
It's only "impossible" because of assumptions built into the current system.
pineaux 2y ago
As a counterpoint: Most countries in Europe don't really have credit scores, but mortgages still exist. We even balk at the idea of needing to take on debt to show you are good for it.
fmbb 2y ago
Do you really believe creditors would just leave all that interest money on the table?
szundi 2y ago
By, in my European country banks just check you up and you get your loan.
padjo 2y ago
This is great example of how people struggle to see possibilities beyond the environment they’re raised in. The credit score system is not necessary to have loans and mortgages, as evidenced by all the countries that don’t have such a system. The notion that you have to take on debt to “build up your score” is particularly absurd nonsense to most non Americans
CalRobert 2y ago
I just got a mortgage here in the Netherlands. No credit score.

scarab92 2y ago

A large component of interest rates is a risk premium that depends on the likelihood of a borrower defaulting. Credit scoring significantly outperforms any other methodology for assessing default risk, including credit matricies and especially human assessments (humans are shockingly bad at assessing default risk, rarely much better than a biased coin flip). It's all well and good to say we should get rid of credit scores, but because they are so much more effective at assessing default risk than other methods, the consequence will be significantly higher rates of default, which means more people in financial hardship, and higher interest rates generally (though especially to low risk borrowers who will now be assessed as having closer-to-average default risk) It's also not often appreciated, but credit scoring is also the single best technique we have to stop people borrowing beyond their means and entering into financial hardship and debt spirals. There are other techniques that exist to identify at-risk borrowers but these alone aren't as good as an approach which also incorporates credit scores. As for explainability, unfortunately the best credit models are trained using AI techniques, which results in low explainability (since the risk signals are complex and multivariate). Older GLM approaches can be used, but aren't as good, so if we want high explainability, the trade off is worse performing credit models, and thus higher borrowing costs.

immibis 2y ago
Can this function only be performed in secret or is it possible for this to be transparent and still work?
- scarab92 2y ago
  The challenge would be that there isn't just one "credit score". The scores published by bureau's exist more for marketing and as a stick to improve consumer behaviour. A credit bureau's real product is the credit file, which contains your history of inquiries, defaults, collections, court judgements etc. In some countries it also includes granular payment history information. From this file, many lenders compute their own internal credit scores. They do this because the credit scores published by the bureaus are the likelihood to default on any loan, however in practice consumers are often more likely to default on certain types of debt than others. Also, many lenders have additional data points that can be considered which the bureau's don't capture, such as the structure of the loan. If there's anything questionable going on (e.g. using variables which act as proxies for factors prohibited by ECOA or FHA) it will be occuring in these proprietary lender-specific models, however the parameters used in these models also embed commercial sensitive information about the behaviour of their customer base, so I doubt many lenders will be keen to release them.