Before credit reporting credit decisions were literally determined based on vibes, which of course means rampant discrimination. While I can think of additional protections and reforms to credit reporting, I’m not sure there is a better option for determining credit risk than a centralized credit reporting mechanism like we have now
I don’t have a specific policy proposal for you. Needing a long term loan to have access to transportation or a place to live is already a pretty grim situation, but building a punitive and dystopic privacy nightmare on top of that doesn’t really meet my criteria for “unpleasant but necessary facts of life, might as well accept it”.
We’re miles away from a sane reality, and all I’m doing is pointing that out - we’re not going to have a good time whether we decide to accept it and let things get worse or start fighting our way back. It’s all a nightmare.
Needing a long term loan to have access to transportation or a place to live is already a pretty grim situation
Honestly it wouldn’t be such a concern if cost of living was better balanced and a much more robust social safety net was in place. For a money-based society heavily regulated credit scores are probably the best solution to the challenges of fair lending.
I’d even hazard to say the current credit system doesn’t require significant reform. There’s a lot of consumer protections still on the books unlike other systems in the US that badly need reform. There’s predatory credit products that need to be regulated out of existence for sure, and some of the scaled back protections need to be put back, and I can think of a few minor improvements, but it’s one system that I honestly think is not far off from its ideal form.
It’s there for good reason. Credit can be used for good or ill. Just remember, anything can and will be gamified. We humans love patterns and puzzles too much.
Who would be likely set something like this up without the desire to use it for social control? The government? China’s system. Capitalists? Ours. It exists to incentivize you being in perpetual debt that can be leveraged over you by those who own everything. It’s a system that ensures indentured servitude; a system for the wealthy to project power over you. What fucking entity would have selfish motivation to do anything more?
Collateral and, historically, age, race, sex, and ethnicity. They’d also look at how well you were dressed because 100% of the time you went to the bank in-person to get a loan. Also, your bank wouldn’t be far from where you lived and the local population wasn’t so large that they couldn’t just “ask around” the local social network to see if this man before them was upstanding enough to warrant giving them money.
Also note that people didn’t need to borrow money as much as they do today. You wanted a new home appliance like an oven or refrigerator? You saved for quite some time to buy it.
There weren’t as many things to spend your money on either!
I’m a bit confused by your response. Are you suggesting going back to the old ways (as your description of those old ways encapsulates) or are you pointing out the shortcomings of the old ways (of which there are many)?
I’m just telling it like it is. The old ways were terrible! However, being local and requiring proper collateral instead of just giving n people money en mass—knowing that the percentage that default will be outweighed by the percentage that pay the loan back (and ripping people off by making them pay the interest up front)—was probably better for the economy.
Not everyone should be allowed to amass debt the way we currently allow it. Furthermore, if people couldn’t get loans for school so easily (in fact, guaranteed!) then college tuition would be but a fraction of what it is today.
Local meaning what does local have to do with it unless you’re allowing that bank to make a subjective decision about lending to you because they know you or the area? That’s how we got people of color being denied loans for houses in certain areas of town via “Redlining”. If we allowed this we might also have discrimination based on being LGBTQ or being an unmarried mother.
and requiring proper collateral instead of just giving n people money en mass
So if you need to get a car loan, and you don’t own any assets to put forth for collateral you just don’t get a car?
Furthermore, if people couldn’t get loans for school so easily (in fact, guaranteed!) then college tuition would be but a fraction of what it is today.
Furthermore, if people couldn’t get loans for school so easily (in fact, guaranteed!) then college tuition would be but a fraction of what it is today.
And college would only be available to the rich that already have money, or the middle class with assets (like a house) to borrow against. The poor, without money or assets, would be shut out entirely.
A credit score doesn’t tell a lender if you will pay back a loan. A credit score tells a lender how much off a guarantee it is to make money of lending you money.
A credit score doesn’t tell a lender if you will pay back a loan.
Well, nothing is a guarantee in life. However, that’s exactly what its designed to do. It provides the recent history of the borrower and how much debt they are carrying now to show that the borrower is capable of servicing the debt. All of the included factors go into the score. I mean, the components of the score are not a secret. Is publlished right on their website:
A credit score tells a lender how much off a guarantee it is to make money of lending you money.
Kind of. If the borrower is bad at paying back debts, then the lender increases the interest rate to cover the likelihood the borrow will default on the loan. Keep in mind, they aren’t trying to get all of their principal back from the risky borrowing through interest before the borrower defaults. This risky borrower is pooled with other risky borrowers. The higher interest rates they all pay covers the few that default.
Accept the risk and pay the cost of the defaults. If lenders would have it their way, they’d only lend to people who pay back and charge them interest on it for the privilege, which would be pure economic rent.
Do you honestly think any lender would stay in business very long if they did this? Especially if there were no consequences to borrowers, (such as a what exists today with a credit score hit that would prevent you from borrowing in the future) why would anyone pay back a debt?
There are problems with credit reports and credit scores, I agree. Medical debt and perhaps even student loan debt shouldn’t be on there. However, throwing out the whole thing makes life for most everyone significantly worse, except the rich. The rich will do fine because they have substantial assets to use for loan collateral without any credit scores. How about you? What property would you be able to put up if you needed new car or wanted to borrow for a mortgage?
If lenders would have it their way, they’d only lend to people who pay back and charge them interest on it for the privilege, which would be pure economic rent.
You’re describing borrowing before credit scores. Or at best any unsecured lending was for only very small balances, such as few hundred dollars. So no credit cards with four or five figure credit limits. Mortgage lending with a required a 20% down payment. No 20% cash? Enjoy renting. Before the Great Depression it was a required 50% down payment, and you only had 5 to 10 years to pay off the other 50% or they came and took your house and kicked you out in the street.
Oh, and we think interest rates are bad now. My parents were paying a 12% mortgage interest rate in the 1980s. Do the math on that today to see how much that would increase a monthly mortgage payment putting home ownership even farther out-of-reach of many.
This is the future you’re wishing into existence, a return to the “bad old days”. If you get your wish, getting ahead for the average American gets harder, not easier.
But with no ability to borrow to buy those, then cheap, houses, who would buy them and why? Sadly the answer would be: those with cash so they could rent them out.
There are limits of course. Building a new house has a minimum cost, which factors into the value of existing homes. But with lower investment costs to buy a house, less pressure to make that cost back with high rent.
I’m not an economist, but I’m not aware of any economic systems that work without a lending component.
Without lending that means you’ve got one group of people with stuff that don’t need it, and another group of people with need for stuff but without stuff. Without lending there’s no way for the people with needs to get stuff, and the stuff is wasted sitting without being used.
Money is credit. It’s a promise that someone else will pay their labor or capital or goods in exchange.
I would like a world where the things people NEED housing, food, medical care, are provided and the things people want, they can save up money (credit) and purchase by selling what they can, labor, skills, assets.
Yeah pretty much. It’s just, in a capitalist system (without some kind of overarching ideology shaming people into not doing it), there is no lending without profiting. Nobody is going to lend their money out of the goodness of their heart in this system.
Credit reporting is an evil practise. It needs to end.
Before credit reporting credit decisions were literally determined based on vibes, which of course means rampant discrimination. While I can think of additional protections and reforms to credit reporting, I’m not sure there is a better option for determining credit risk than a centralized credit reporting mechanism like we have now
I don’t have a specific policy proposal for you. Needing a long term loan to have access to transportation or a place to live is already a pretty grim situation, but building a punitive and dystopic privacy nightmare on top of that doesn’t really meet my criteria for “unpleasant but necessary facts of life, might as well accept it”.
We’re miles away from a sane reality, and all I’m doing is pointing that out - we’re not going to have a good time whether we decide to accept it and let things get worse or start fighting our way back. It’s all a nightmare.
Honestly it wouldn’t be such a concern if cost of living was better balanced and a much more robust social safety net was in place. For a money-based society heavily regulated credit scores are probably the best solution to the challenges of fair lending.
I’d even hazard to say the current credit system doesn’t require significant reform. There’s a lot of consumer protections still on the books unlike other systems in the US that badly need reform. There’s predatory credit products that need to be regulated out of existence for sure, and some of the scaled back protections need to be put back, and I can think of a few minor improvements, but it’s one system that I honestly think is not far off from its ideal form.
It’s there for good reason. Credit can be used for good or ill. Just remember, anything can and will be gamified. We humans love patterns and puzzles too much.
Credit scores are barely a 40 year old concept
There is far more corporate and institutional fraud rather than individuals causing problems
Who would be likely set something like this up without the desire to use it for social control? The government? China’s system. Capitalists? Ours. It exists to incentivize you being in perpetual debt that can be leveraged over you by those who own everything. It’s a system that ensures indentured servitude; a system for the wealthy to project power over you. What fucking entity would have selfish motivation to do anything more?
What should lender use instead to determine you are capable of paying back money you’re asking to borrow from them?
Collateral and, historically, age, race, sex, and ethnicity. They’d also look at how well you were dressed because 100% of the time you went to the bank in-person to get a loan. Also, your bank wouldn’t be far from where you lived and the local population wasn’t so large that they couldn’t just “ask around” the local social network to see if this man before them was upstanding enough to warrant giving them money.
Also note that people didn’t need to borrow money as much as they do today. You wanted a new home appliance like an oven or refrigerator? You saved for quite some time to buy it.
There weren’t as many things to spend your money on either!
I’m a bit confused by your response. Are you suggesting going back to the old ways (as your description of those old ways encapsulates) or are you pointing out the shortcomings of the old ways (of which there are many)?
I’m just telling it like it is. The old ways were terrible! However, being local and requiring proper collateral instead of just giving n people money en mass—knowing that the percentage that default will be outweighed by the percentage that pay the loan back (and ripping people off by making them pay the interest up front)—was probably better for the economy.
Not everyone should be allowed to amass debt the way we currently allow it. Furthermore, if people couldn’t get loans for school so easily (in fact, guaranteed!) then college tuition would be but a fraction of what it is today.
Local meaning what does local have to do with it unless you’re allowing that bank to make a subjective decision about lending to you because they know you or the area? That’s how we got people of color being denied loans for houses in certain areas of town via “Redlining”. If we allowed this we might also have discrimination based on being LGBTQ or being an unmarried mother.
So if you need to get a car loan, and you don’t own any assets to put forth for collateral you just don’t get a car?
And college would only be available to the rich that already have money, or the middle class with assets (like a house) to borrow against. The poor, without money or assets, would be shut out entirely.
There in lies the confusion.
A credit score doesn’t tell a lender if you will pay back a loan. A credit score tells a lender how much off a guarantee it is to make money of lending you money.
Well, nothing is a guarantee in life. However, that’s exactly what its designed to do. It provides the recent history of the borrower and how much debt they are carrying now to show that the borrower is capable of servicing the debt. All of the included factors go into the score. I mean, the components of the score are not a secret. Is publlished right on their website:
source
Kind of. If the borrower is bad at paying back debts, then the lender increases the interest rate to cover the likelihood the borrow will default on the loan. Keep in mind, they aren’t trying to get all of their principal back from the risky borrowing through interest before the borrower defaults. This risky borrower is pooled with other risky borrowers. The higher interest rates they all pay covers the few that default.
Accept the risk and pay the cost of the defaults. If lenders would have it their way, they’d only lend to people who pay back and charge them interest on it for the privilege, which would be pure economic rent.
Do you honestly think any lender would stay in business very long if they did this? Especially if there were no consequences to borrowers, (such as a what exists today with a credit score hit that would prevent you from borrowing in the future) why would anyone pay back a debt?
There are problems with credit reports and credit scores, I agree. Medical debt and perhaps even student loan debt shouldn’t be on there. However, throwing out the whole thing makes life for most everyone significantly worse, except the rich. The rich will do fine because they have substantial assets to use for loan collateral without any credit scores. How about you? What property would you be able to put up if you needed new car or wanted to borrow for a mortgage?
You’re describing borrowing before credit scores. Or at best any unsecured lending was for only very small balances, such as few hundred dollars. So no credit cards with four or five figure credit limits. Mortgage lending with a required a 20% down payment. No 20% cash? Enjoy renting. Before the Great Depression it was a required 50% down payment, and you only had 5 to 10 years to pay off the other 50% or they came and took your house and kicked you out in the street.
Oh, and we think interest rates are bad now. My parents were paying a 12% mortgage interest rate in the 1980s. Do the math on that today to see how much that would increase a monthly mortgage payment putting home ownership even farther out-of-reach of many.
This is the future you’re wishing into existence, a return to the “bad old days”. If you get your wish, getting ahead for the average American gets harder, not easier.
It would crash housing prices, which would be objectively good. I can’t say for certain if it would be worth the other costs.
But with no ability to borrow to buy those, then cheap, houses, who would buy them and why? Sadly the answer would be: those with cash so they could rent them out.
If houses cost less then rent could go down.
There are limits of course. Building a new house has a minimum cost, which factors into the value of existing homes. But with lower investment costs to buy a house, less pressure to make that cost back with high rent.
How about we don’t build an economy on borrowing?
I’m not an economist, but I’m not aware of any economic systems that work without a lending component.
Without lending that means you’ve got one group of people with stuff that don’t need it, and another group of people with need for stuff but without stuff. Without lending there’s no way for the people with needs to get stuff, and the stuff is wasted sitting without being used.
Thats the world you want to live in?
Money is credit. It’s a promise that someone else will pay their labor or capital or goods in exchange.
I would like a world where the things people NEED housing, food, medical care, are provided and the things people want, they can save up money (credit) and purchase by selling what they can, labor, skills, assets.
I agree with you, but thats a wholesale change in government and society far removed from credit scores.
Well usury is harem in Islam, so you can do it without the insane profiteering.
So your problem isn’t lending, its just large profits on lending?
Yeah pretty much. It’s just, in a capitalist system (without some kind of overarching ideology shaming people into not doing it), there is no lending without profiting. Nobody is going to lend their money out of the goodness of their heart in this system.
Though mutual aid could probably solve this.