The american "credit" system and meaning?

[rds100]

Please pardon me the stupid question, but what's the big deal with the american "credit system". I mean people keep talking about good credit, bad credit, etc. So what's the significance of this?

I understand that if one has a "bad credit" he is not able to take credits / loans. But so what, what's the big deal with that?

I myself have never taken a single dollar / Euro of credit and don't indend to either. Also i don't own any credit cards and don't want any. I only use debit cards.

So what's the big deal with this "credit" thing?

 

[Aldryic C'boas]

In the US, it's necessary for larger loans (Mortgage, vehicles, etc).  "Good credit" doesn't require actually having credit cards/etc - just pay bills in your name on time.  "Bad Credit" is the threat companies make to ensure you pay for the contracts you got yourself locked into.

As far as the practical importance of credit - just ask any first time car/house buyer how easy it is to get financed if they have no credit.

 

[texteditor]

I myself have never taken a single dollar / Euro of credit and don't indend to either. Also i don't own any credit cards and don't want any. I only use debit cards.

Same here, but you have to realize that in America, or even the world in general that makes us a lucky outlier.

Also, credit ratings in America are oddly important in other ways too, like sometimes poor credit rating can/will affect who is willing to hire you for a job or even rent you an apartment. Even if you are the kind of person who never uses credits, only spends cash you have on hand, etc.

 

[DomainBop]

I understand that if one has a "bad credit" he is not able to take credits / loans.

If the bad credit is related to a bank/checking account (frequent overdrafts, bad checks) it can also prevent you from opening any bank account or checking account.  Almost all US banks subscribe to a credit reporting agency (in essense a blacklist) called ChexSystems and if someone gets added to that they stay on the list for 5 years and will find it almost impossible to open any banking account.

 

[wlanboy]

It is the US way to measuring the trust in one person.

Every time you are refused a line of credit, lose a card, or pay a bill late, that information goes onto your credit report, which calculates your all-important credit rating, a score from 300 to 850.

The higher your score, the “better” you are, and the less “risky” you appear to the bank/credit card company/gas company. Some employers may even check your credit report too.

Equifax, Experian, and TransUnion handle these checks. You can get one free report per year.

 

[texteditor]

Equifax, Experian, and TransUnion handle these checks. You can get one free report per year.

This reminded me that I haven't checked in 2 years, probably because last time I checked (around age 23) I still had no score due to only have a handful of utility/cable bills in my name over the years and nothing else.

 

[rds100]

So what, the utilities, cable operators, etc. submit your data (name, bill amount, etc.) to these credit registries, even if you have no overdue bills? Isn't this a breach of privacy?

 

[wlanboy]

So what, the utilities, cable operators, etc. submit your data (name, bill amount, etc.) to these credit registries, even if you have no overdue bills? Isn't this a breach of privacy?

Not at all.

Just that you paid your bills.

B.t.w. your bank knows everything about you - so no "breach".

 

[KuJoe]

When you sign up for anything money related you always have to check a box that allows the other party to look up your credit history. You also give them permission to report your history to those agencies listed above.


It's a double edged sword which I have felt both sides of.

 

[drmike]

Credit the great evil of American society.

Bad credit or lack thereof use to mean no buying things you couldn't afford out of pocket.

But they've bastardized credit and the use of the ratings.  Use to set insurance rates, used in pre-employment, used probably by TSA and other government busy bodies.

I use NO CREDIT.  I prefer to pay ahead for services.  Each year people get odder about accepting cash and such arrangements.  Although cellphone companies did a 180 turn on this.   Hopefully more companies move to prepay, anonymous and cash.

Credit is a trap many in the US spend most of their life from trying to get out from under.

 

[MannDude]

If I can't buy it with cash in hand, then I can not afford it.

I have no idea what my credit rating is. All my utility bills I pay on time, minus a late bill here or there that I pay within the time frame for late bills. I did apply for a credit card in the past, but was denied. That was like... 5 years ago or something. Now, I just tell myself if I can't save up money for it and buy with cash or do a contract agreement between myself and another individual for payments, then I can't have it.

 

[tchen]

Credit systems have pushed the ability to get credit down to a lot of people. While you may not have had an easily accessible 'bad credit' score back then, if you were to have behaved like that back in the day, you wouldn't have been granted it unless the bank owner owed your family a favor. They then make up for your bad behavior by overcharging grandma next door to make up the risk cushion. Ah, the good ol' days.

 

[imperio]

If you want to get credit cards, mortgage,vehicle or other loans banks are looking at your credit score to learn how trustable you are.This is not specific to USA.EU and other countries have also similar policies.If you do not have credit score or lower score you can get loans,credit cards limited to i.e $250 so you can not afford house,car etc if you do not have enough cash.

 

[drmike]

I tell the story often to people whining about credit... Typically younger people who haven't lived long enough to see through the credit BS routine.

Years ago I went to look at buying a very old and grand residence.  Huge historical mansion.   The price was high and owner was selling half of it, legally divided and built.   It was many times more in cost than the neighborhood average and no comparables.

I went shopping for loans and was all sorts of excuses and horrors and terms I didn't like.    Basically something starting at $200k+ would become much much more and I'd have to double it to buy the other half.  Think like $1 million total cost plus all the needed improvements, updates, etc.

Here's the meat of the story and duh moment.  Asked the fellow selling how he came about the property and it turns out his family bought it (i.e. he inherited it).  His father circa 1950~ bought the place by going down the street to local real estate company and giving them $50 and paying them monthly some similar amount.

Yeah, that's how vast majority of real estate transactions happened.  Person to person cash in the neighborhood.  Before all the whining, 200 pages of bullshit, inspections, blah blah blah...

Bet your ass, we are headed back to such deals betweens humans.

 

[peterw]

I am driving a lot and I do lease/rent cars alot. You need a credit card and an international driver's license to do it.

 

[BuyCPanel-Kevin]

It's not likely that people in America (or anywhere in the world for that matter) have hundreds of thousands of dollars just lying around when it comes around to buying a house (which most Americans come around to doing eventually) so people have to take out a loan to pay for the house, and in order to take out a loan you've got to have good credit so mind as well start building up credit the instant you can (typically at 18 years of age)