You could instead just look at the history of their debit card usage to figure out whether they are trustworthy.
As I said though I understand why they do it, it's just not a very useful model IMHO but because it's big money and it's complex to change it most probably wont for now.
First of all, you can have an excellent credit score without paying a penny of interest. All you have to do is buy things with your credit card, and pay the bill in full when it arrives. You will never pay any interest when you do this.
Second, the people who measure risk for a living have determined that people's history with small amounts of debt is indicative of their ability to manage larger amounts of debt. Do you think their actuarial models are incorrect, and if so, why?
Furthermore, it's not like a good credit score is all it takes to get a mortgage. Proof of income matters too. As anyone who bought a house since the 2008 debacle will tell you, mortgage lenders take great pains to verify borrowers' income and the source of the money they use for their down payment.
> You could instead just look at the history of their debit card usage to figure out whether they are trustworthy.
No, you really can't. A debit transaction is a direct deduction of money from a checking account -- it is not debt. The only thing that can go wrong is an overdraft, and even when that happens, the payee will probably be unaware of it. Debit is more similar to cash than it is to credit. People have very different psychology and behavior when they use debt instead of cash.
There are plenty of problems with the credit system in the US, but the things you have identified as problems are not real problems.
Second it's a fairly know issue that the way creditscore is established is pretty flawed. You can have 10mio on your account, but if you have no job or own your own company it will actually affect your credit score. This whole thread is started because of some of the issues.
With regards to the debit card the point is that the kind of purchases you did before you got a credit card, aren't going to change dramatically or fundamentally after you get one.
That's not true. Your FICO score does not take into account your employment status, nor your income.
> With regards to the debit card the point is that the kind of purchases you did before you got a credit card, aren't going to change dramatically or fundamentally after you get one.
If that were true, it would contradict your earlier argument that "most people don't use it like that which is why it's such a good business." Your statements cannot both be true.
I don't think it's backwards. Debt is only a bad thing if you're being irresponsible about it, so it's like a weedout test. In the other system, can you just buy a house on credit with no credit history? If so, I just find that hard to comprehend.
Also, re: your comment about foreign people, my dad had no issue with it, but maybe you're saying people that are not yet citizens?
If we want to avoid debt "accidents", only letting people with demonstrated experience seems like a good solution.
A provisional license offers both supervised training and effectively delays entry into the unsupervised insurance pool by a year.
After this, location (e.g., ZIP Code, in the US) and miles driven are the biggest predictors. Latter are why insurance companies will do almost anything to get ahold of odometer readings.
Source: Worked on auto insurance risk products.
A lot of people don't realize this I think but if you hold a balance, especially over whatever percent of your total credit, it hurts. The moment I paid off all my cards my credit score jumped and all my limits increased.
You could learn about peoples financial maturity through simply checking their normal debitcard/bank transactions.
Does he/she pay is monthly rent, is he/she constantly hitting zero on their balance etc. None of this require credit card usage.
For instance paying your rent on time. I.e. something that can be proven other ways than using your credit card.
Being non-american I went trough this and have a pretty good idea on how it works and some of the myths.
I guess some of the confusion is around the before/after a card.
I had to basically fund my own credit for some time and pay it off. All which cost money of course.
As a foreigner thats how it's normally done. At least in a bank like Citibank.
And you would never have been in debt.
2) Shred credit card
3) Now you have a credit history
(They'll probably close your account in a year of inactivity if you don't use it but you'll still have credit history until the account falls off your report-10 years)
Citation required because debt is not the same thing as money, so associating them together like you do with your assertion requires something more than just your illogical statement.
I live in the US and I grew up in Denmark.
Both systems allowed me to have credit cards, rent apartments, buy a car etc, but only the US system forced me to do that by creating debt to show that I could be trusted with debt.
In other words large parts of the world do in fact associate them and aren't like us in the US debt ridden.
The American economy, and largely the world economy is based on accusation of debt.
If everyone in the US, or other First world nations simply started living with in their means, never incurring debt the entire of the world economy was cease.
Thus the credit system is design to reward people that acquire more and more debt and punish people that save or live frugal life styles with in their means
The modern economy depends on a person gathering debt from their 18th birthday until their death, where the assets of their life are then sold to cover those debts ensuring the next generation also has to acquire debt repeating the cycle.