I can relate, as I came in US from Europe. I arrived, opened a bank account in a big bank, I could only get a debit card, because I had not credit history. After few months I could get a credit card, but with a $500.00 limit! I needed a car, so I bought one cash.
When came the time to buy a home, I was asked to open more credit cards (one was not sufficient) and come back in a year or so later, to see how my score would improve.
Doing the same thing but this time with interest proves nothing the others don't. Borrowing history makes sense for businesses or people who with complicated cash-flows. But if you're stably gainfully employed the only things that matter is how you manage your external financial risks (which banks don't check for) and your ability to not over spend (which banks also don't check for).
Combine this with the your typical mortgage is overcollateralized means the magnitude of the loan is essentially meaningless.
Credit score is a moralizing system that hates the poor, so it's unsurprisingly embedded itself into American culture by three corporations that will never be held accountable (see: Equifax leak).
It's as American as the bald eagle. I'll stop now, my cynicism is showing. I just don't see a way to get to a place where we don't have the current trifecta of credit scoring corporations running our lives without a giant pile of money to start a competing credit bureau that makes and underwrites loans based on different computation of a person's score. Because a credit score was initially for rating people on their ability to pay back borrowed money. It's just been perverted since its inception into what we have now.
I agree. And slowly credit scores are starting to take rent into account.
> There's no difference at all for someone who works a dayjob.
But there is a difference. If you put your living expenses on a $500/mo credit card, you can have a $120k job and be eating ramen, living in a flophouse and spending the rest on drugfs or supporting people who cannot work. You cannot afford to service a mortgage. If you commonly service larger debts, then they don't have to worry about hidden things sapping all your funds.
Now they want to borrow $5k all of a sudden. Do you give it to them, just based on the above history?
That seems like such an obvious answer to me I want to ask if you intended to ask that of me or the person I was responding to.
As part of your loan application I can see your savings, income, employment history, and credit history. The payment on a 30-year fixed $5000 loan is $35/mo with current interest rates so that's the bar I need to hit.
* I see that your monthly cash flow is $200 which puts your loan payment at 17.5% of that.
* You're putting 20% down or $1250 which demonstrates to me that you're capable of saving 35x the loan payment.
* Your borrowing history is sparse but you pay of your $5 Spivak CC every month which is 20% of the loan payment right there.
* The loan is collateralized by an appreciating asset whose market value is $6000.
Yes. Obviously I'm giving the loan. To second order no one has a six figure credit history. Their first mortgage is likely to be the first and last loan of that magnitude in their lives.
It's also very easy to qualify for a $500k mortgage if you are clearing $250k a year. It makes me wonder how old you are, as "house prices are 2.6x a household income" is something that last existed in most places in the mid-1990s.
> To second order no one has a six figure credit history.
It is remarkably incorrect to treat it as a flat "no six-figure history means they are all are equivalent to a $500 history". Almost everyone has four-figure credit history based on credit cards, most people have five-figure credit history based on car loans and many people have six-figure student debts.
So, if I have been making $100K for 6 years at the same company, with no credit card (I only used debit in Europe because there was very little incentive for me to use credit card that I pay at the end of the month), even though I have never had a debt before, they would be willing to give me loan. While in US, with no credit card before, they could not.
The myth of US-style 'credit score' requiring a history of card use does persist here though, and I've known several people who have had to close one or more credit cards in order to get their mortgage approved.
Your credit wasn't near-perfect. You hadn't defaulted, but that's far from proving that you can manage your credit/money and make payments on time. A hobo who lived in the woods would also have never missed a payment.