You're viewing a single thread.
How does that credit score work at all?
Not an american and we don't have a credit points system like them so interested.
Basically there's some opaque formula companies use to figure out your score based on how often you use your credit cars/take out loans, how regularly you repay them, etc. This in turn affects your ability to get loans. Like if you want to buy a house or a car, they'll check your credit score, and if it's not high enough then they won't float you, etc.
Yogthos answer is great, To add more context, and be a bit more negative... the credit score effectively incentivises spending a lot of money and taking out a lot of loans, and by taking out a lot of money and by paying them off, you get better credit, which means only the people who can take on big loans and pay them off get better credit. Basically only rich people have good credit, which means basically only rich people can buy houses and cars and things like that. It perpetuates a cycle for the rich getting richer and the poor staying poor.
Remember, in America, houses are an investment. You can use them to collect rent and, in general, line should go up, so your investment will gain in value over time on average.
This isn’t entirely true. A large part of a credit score is the age of revolving credit accounts. So you can get a very high score but just having a credit card with a $200 a month limit and paying it off each month on time. By year 2 your score should be very strong.
Or take out a higher limit card and just pay all your bills with it.
You don’t need massive loans or multiple accounts.
Ehhhhh, kinda.
Some credit card companies make their information more public.
Almost all across the board take on-time payment history as their largest contributing factor of the credit score, 35% according to my report. This means that any missed payments on anything will dramatically reduce your credit score. These hits on your score last, I believe, five years.
Next, at 30%, is only utilizing a small amount of your total credit. Now in such a case, you can get a very low amount of credit and use very little of it. This is fine. But if you're going to use your credit card for actual things, which takes advantage of getting points and bonuses and yada yada, then you need a lot of credit. As someone with a $15,000 limit on one credit card, I am able to keep my credit usage by percentage very low.
Next, add only 15% of your credit score, which is still big, but not as big as the others, is credit age. 0-2 years is only the starting place. Your credit age is average between three and seven years and it only becomes good when it's over seven years. You can only achieve an excellent in this category with 25 or more years of continuous credit usage. This is by far the absolute hardest part of your credit score to increase. The best way to have a good credit score at a young age like in your 20s is if your parents opened one with you and put you on their good credit score when you were in your teens. This can be very dangerous for people who don't have enough money to pay off their card every month and can spiral you into debt really fast.
Having $50,000 or more in credit limit is optimal for the highest credit scores. Considering they do income checks when you apply for a credit card, you absolutely will not have a high credit limit on any one card unless you make a lot of money.
Next and the smallest amount of effect on your credit score is new accounts and recent inquieries. This means you can't go get a bunch of new credit cards all at once, or else your credit score will tank. And if you buy two cars and a house in one year, you should wait a good three years before applying for anything else, less you hit your credit score.
Sorry for the brain dump. I had experience with this as a liberal and learned a lot about it. Just the high credit limit, old credit age, and low utilization requirements, means that basically anybody who is poor is going to have a hard time getting high credit.
Mistakes at least do go off your credit history. I actually had defaulted on a loan when I was younger and really fucked things up and my credit score was garbage. But now it is routinely over 800 when I check it, and it's been over 850 when companies have checked it. I got my morgage at 2.4%... Good credit is cheap to maintain once you have some money... But not impossible if you have less. Just really hard.
To expand on what Yogthos and RedClouds already said, the U.S. "consumer credit" system is also, effectively, mandatory participation from birth and you don't ever get a choice in it later on. There are multiple private agencies who track and maintain records of U.S. citizens' credit history. A typical person here will do business or apply for jobs at many companies over their lifetime which will check these credit histories and/or submit that person's payment records to the agencies as part of the business (like mobile phone service contracts, credit cards and car loans, corporate landleeches and your monthly rent history, etc. etc.).
I think the way it works is, the first time you do business with a place that reports to credit agencies when you turn 18 or whatever, your identifying info is sent over and your personal credit history begins. It's like having an account created on your behalf at a shady, unaccountable business from which your data can't and won't ever be purged (bonus: your personal info has a good chance of getting stolen from said agencies and sold on TOR forums every few years or so).
If a credit check is part of the employment process at some job, their HR department is using it to determine how responsible and trustworthy an applicant is expected to be. Banks and finance jobs always do this as well as other non-finance but high level jobs. Someone with large amounts of current debt or history of missing payments on rent won't get hired at such jobs because they're considered bad with money and desperate or irresponsible, a liability for theft and embezzlement as the employer would see it. Same principle when applying for places to live, low credit score or red marks in payment history = no housing for you.
The system has a bunch of stupid guidelines for maintaining a high 'credit score' that are taught as sage life advice in a lot of high school, home economics classes here, probably because this shit is so deeply ingrained in every aspect of life that it's inescapable. That 'credit score' is a three-digit number ranging from about 500 to 850, it's often listed with some minimum required score on housing applications and similar, it is used as a quick judgment on your history of borrowing from and repaying capitalist entities, higher number being better. It's calculated by a an algorithm and nobody knows what the algorithm is because it's an industry secret. The score is updated regularly and we can get a free copy once per year of everything on our personal credit reports from each of the three "main" credit agencies, if we request one.
Unless you're so wealthy you can buy everything with cash, having no credit history at all or a bad credit history can significantly impact your life comfort and ability to find housing, so we are forced to play this fucked up game.