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Americans be like (lemmy.ml)

submitted 8 months ago by [email protected] to c/[email protected]

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[–] Imgonnatrythis 8 points 8 months ago (3 children)

I'm honestly unsure. What is the alternative? Instead of a pre-emptive risk assessment of whether or not you can pay something, more people just receive punishments when they end up not being able to? I don't like being judged or told what I can or cannot pay back a month from now, but on a large scale doesn't this mostly protect people from dangerous debts? For the opponents, what is the proposed alternative?

[–] [email protected] 12 points 8 months ago

on a large scale doesn't this mostly protect people from dangerous debts?

Not really. It just ends up with lenders offering far more predatory interest rates, which worsens the situation for the debtor. The system is set up in such a way that you can spiral pretty hard with a single misstep.

[–] azertyfun 5 points 8 months ago* (last edited 8 months ago)

I’m honestly unsure. What is the alternative?

Given that there are plenty of developed countries where credit scores don't exist (and plenty more where they do but only for businesses), I think alternatives are imaginable. I would know, I live in one such country.

If you want a mortgage here, the bank will:

Ask you about your current loans and potential past defaults
Ask you about your current and past income, marital status, employment status, etc.
Use those variables to pretty straightforwardly determine your loan capacity
I think do a background check in national databases for defaults/"bad payer" status
Contractually obligate you to receive your salary on the same account from which they will automatically pull the mortgage. I don't think this helps reduce actual defaults much, but it probably greatly reduces the financial and administrative overhead of late/missed payments. Also this ties you into the creditor bank which is good for business, IDK how standard that practice is abroad.

The US consumer economy is very highly dependent on short-term/credit debt, and that is absolutely crazy to me. Some Americans say they "need" a credit card to defer payment on some purchases, and as someone raised in culture where debit is king this sounds absolutely insane. Y'all have been propagandized, here it is perfectly normal to not have a single credit line open before shopping for a mortgage and if anything your banker will commend you for it.

[–] [email protected] 0 points 8 months ago (1 children)

For the opponents, what is the proposed alternative?

I’d imagine this is the crux of the problem. Banks need some way to determine if someone will pay back their loans, and what better way than to tabulate their history of doing just that? Should banks be willing to take risks in a system with stuff like the 7 year rule?

[–] [email protected] 10 points 8 months ago (2 children)

If it was about the ability to pay back loans, then why does it go down when I finish paying the loan? Its about your ability to pay as much interest as possible.

[–] [email protected] 6 points 8 months ago

This. Paid off my house and my excellent credit score dropped by almost 20 points.

[–] [email protected] 2 points 8 months ago

Part of your credit score is also the present. It’s more than a bit predatory, but not having any current financial responsibilities looks bad. For example, if you have no loans whatsoever but paid back a bunch in the past, there’s little evidence saying you can currently pay them off. At least, that’s the theory of it.