…except that it used to be that your ability to secure a loan was based on where you went to school, how firm your handshake was, and if you happened to have the right skin color and sex organs.
The current system certainly isn’t perfect; and if you’re denied a loan you have a legal right (in the US) to know the reason.
There are systemic issues, to be sure. But the nominal goal is absolutely better than what we used to have.
We can’t ignore that there are other ways of doing it besides credit scores or overt racism. Some countries have no credit scores at all and just base loan eligibility on your salary and employment history.
And how exactly is guessing your credit worthiness based on those factors a better system than literally keeping track of what happened each previous time money was lent to you, when it comes to making a decision on lending money to you?
This is like arguing it’s a better idea to select NBA players by their height, than by their performance in high school and college basketball games.
Sorry, I’m not sure how to answer “how is measuring your credit worthiness based on your income a good way to determine how much to lend you.” I would think it’s pretty obvious that your capacity to repay a loan is dependent on your current income, not how many loans and credit cards you’ve had active in the past.
1 in 4 households earning over $100,000 a year live paycheck to paycheck–not because they can’t make ends meet, but because their money management sucks. A high income has very little relationship with responsible borrowing, despite what many would assume.
I’d definitely recommend getting a credit report (not from the websites that advertise with an insane jingle, but from the actual credit bureaus — you’re entitled to a free report). Mine had debt from a relative with a similar name; I was able to get that removed. They will also tell you in more detail what goes in to calculating it.
I agree that it’s not perfect, and often very opaque, but you should be able to get some understanding of why she doesn’t have good credit.
Does your mom have debt that she pays on time? Is her “doing everything right” visible to credit scoring agencies and aligned what statistic says about good borrowing customers?
Credit score doesn’t mean “runs a good personal economy” it means “likely to pay their loans on time, consistently, based on statistics that are observable”.
Just because you refuse to learn doesn’t mean it’s magic. It is very simple to understand why exactly you have the credit score you do. Maybe mommy isn’t being entirely truthful with you.
Most people who think they understand how credit scores work…don’t understand how credit scores work.
The biggest things are loan-to-limit, payment history, and average age of accounts.
Loan-to-limit is easily achieved by keeping balances below 50%, and ideally below 30%. It’s also helped tremendously by not carrying a revolving balance (paying the statement balance in full each month) and not closing idle cards.
Payment history is of course helped by making payments on time.
And AAoA is probably the easiest. Just don’t close cards. Call and “downgrade” a card if it isn’t worth the annual fee. If there’s no annual fee, there’s no reason to close a card.
Just make sure you use it every now and then and pay it off. I sock-drawered one of my oldest cards a long time ago and it just closed last month from being idle, and that took a hit to my score (high limit gone and it’s no longer incrementing time in my AAoA).
It’s also worth mentioning that credit scores don’t matter until you are looking for credit. Credit cards are probably the easiest way to build credit, as long as they are used properly. But they’ll give a basic card to any schmuck. Where it really matters is getting mortgages and larger loans like cars. That’s where having a good score matters. And also better cards that earn more points/miles/cashback and have other fringe benefits.
Only people who are bad credit risks ever come up with this take, lmao.
The sole function of credit scores is to benefit people who are reliably ‘good for it’ when they borrow money. Without them, everyone is treated as just as high a risk as the worst borrowers who are least likely to pay back their debts, and you gain no benefit from reliably paying back your debts. But with them, your good borrowing is kept track of, and good reputation means lenders trust you more to pay your debts back, so they’re willing to lend more, and they are willing to charge less interest.
Removing credit scores changes nothing for bad borrowers, and hurts good borrowers.
The thing is you’re forgetting who are good borrowers and who are bad borrowers. A person with a low income with a precarious job will be a very bad borrower, and imposing a higher interest rate on them on top of that is just the final nail in the coffin. We generally believe universal healthcare is good, and we don’t want to discriminate “good health” and “bad health” people and make unhealthy people pay more, do we?
imposing a higher interest rate on them on top of that is just the final nail in the coffin.
That’s the only way to justify loaning to people like that at all, given how much more often they default (and the lender never gets repaid at all). If lenders were forced to give the same interest rate to everyone, that would cause them not to lend to “A person with a low income with a precarious job” at all.
If the lenders operate with the purpose of maximizing profit, then yeah, it makes sense not to loan money to people in precarious situations except at high interest rates, that’s my whole point: that’s evil, the profit motive leads to evil decisions. Let’s have public banks instead, where interest rates for loans are equalised, in the same way that every taxpayer gets identical access to healthcare regardless of how much they contribute through their income.
You’re discounting the people who have always lived within their means and so never took on debt. They also don’t have good credit. They’ve never missed a payment. They’re good for the money. But they don’t have a history showing that because they’ve never needed that.
You’re discounting the people who have always lived within their means and so never took on debt.
No I’m not. Those people are unknown quantities, and so also suffer if credit scores go away, because bad borrowers are worse than first-time borrowers, so without credit scores, first-timers will be treated worse.
Credit scores are just some fake shit that boomers made up. It’s so dumb.
…except that it used to be that your ability to secure a loan was based on where you went to school, how firm your handshake was, and if you happened to have the right skin color and sex organs.
The current system certainly isn’t perfect; and if you’re denied a loan you have a legal right (in the US) to know the reason.
There are systemic issues, to be sure. But the nominal goal is absolutely better than what we used to have.
We can’t ignore that there are other ways of doing it besides credit scores or overt racism. Some countries have no credit scores at all and just base loan eligibility on your salary and employment history.
And how exactly is guessing your credit worthiness based on those factors a better system than literally keeping track of what happened each previous time money was lent to you, when it comes to making a decision on lending money to you?
This is like arguing it’s a better idea to select NBA players by their height, than by their performance in high school and college basketball games.
Sorry, I’m not sure how to answer “how is measuring your credit worthiness based on your income a good way to determine how much to lend you.” I would think it’s pretty obvious that your capacity to repay a loan is dependent on your current income, not how many loans and credit cards you’ve had active in the past.
1 in 4 households earning over $100,000 a year live paycheck to paycheck–not because they can’t make ends meet, but because their money management sucks. A high income has very little relationship with responsible borrowing, despite what many would assume.
If you stop paying your car or home loan it gets repossessed, people with bad money management still have incentives to pay those on time.
My mom should have amazing credit, but she doesn’t. She does literally everything right.
Meanwhile I have really good credit and have no idea why.
It’s just made up shit and we should find a better system.
I’d definitely recommend getting a credit report (not from the websites that advertise with an insane jingle, but from the actual credit bureaus — you’re entitled to a free report). Mine had debt from a relative with a similar name; I was able to get that removed. They will also tell you in more detail what goes in to calculating it.
I agree that it’s not perfect, and often very opaque, but you should be able to get some understanding of why she doesn’t have good credit.
Does your mom have debt that she pays on time? Is her “doing everything right” visible to credit scoring agencies and aligned what statistic says about good borrowing customers?
Credit score doesn’t mean “runs a good personal economy” it means “likely to pay their loans on time, consistently, based on statistics that are observable”.
Just because you refuse to learn doesn’t mean it’s magic. It is very simple to understand why exactly you have the credit score you do. Maybe mommy isn’t being entirely truthful with you.
Most people who think they understand how credit scores work…don’t understand how credit scores work.
The biggest things are loan-to-limit, payment history, and average age of accounts.
Loan-to-limit is easily achieved by keeping balances below 50%, and ideally below 30%. It’s also helped tremendously by not carrying a revolving balance (paying the statement balance in full each month) and not closing idle cards.
Payment history is of course helped by making payments on time.
And AAoA is probably the easiest. Just don’t close cards. Call and “downgrade” a card if it isn’t worth the annual fee. If there’s no annual fee, there’s no reason to close a card.
Just make sure you use it every now and then and pay it off. I sock-drawered one of my oldest cards a long time ago and it just closed last month from being idle, and that took a hit to my score (high limit gone and it’s no longer incrementing time in my AAoA).
It’s also worth mentioning that credit scores don’t matter until you are looking for credit. Credit cards are probably the easiest way to build credit, as long as they are used properly. But they’ll give a basic card to any schmuck. Where it really matters is getting mortgages and larger loans like cars. That’s where having a good score matters. And also better cards that earn more points/miles/cashback and have other fringe benefits.
Only people who are bad credit risks ever come up with this take, lmao.
The sole function of credit scores is to benefit people who are reliably ‘good for it’ when they borrow money. Without them, everyone is treated as just as high a risk as the worst borrowers who are least likely to pay back their debts, and you gain no benefit from reliably paying back your debts. But with them, your good borrowing is kept track of, and good reputation means lenders trust you more to pay your debts back, so they’re willing to lend more, and they are willing to charge less interest.
Removing credit scores changes nothing for bad borrowers, and hurts good borrowers.
The thing is you’re forgetting who are good borrowers and who are bad borrowers. A person with a low income with a precarious job will be a very bad borrower, and imposing a higher interest rate on them on top of that is just the final nail in the coffin. We generally believe universal healthcare is good, and we don’t want to discriminate “good health” and “bad health” people and make unhealthy people pay more, do we?
That’s the only way to justify loaning to people like that at all, given how much more often they default (and the lender never gets repaid at all). If lenders were forced to give the same interest rate to everyone, that would cause them not to lend to “A person with a low income with a precarious job” at all.
If the lenders operate with the purpose of maximizing profit, then yeah, it makes sense not to loan money to people in precarious situations except at high interest rates, that’s my whole point: that’s evil, the profit motive leads to evil decisions. Let’s have public banks instead, where interest rates for loans are equalised, in the same way that every taxpayer gets identical access to healthcare regardless of how much they contribute through their income.
You’re discounting the people who have always lived within their means and so never took on debt. They also don’t have good credit. They’ve never missed a payment. They’re good for the money. But they don’t have a history showing that because they’ve never needed that.
No I’m not. Those people are unknown quantities, and so also suffer if credit scores go away, because bad borrowers are worse than first-time borrowers, so without credit scores, first-timers will be treated worse.
I’m saying people who don’t play this credit game but otherwise are good financially also think it’s dumb. Not just bad risks.