> I don't know what country you're in, but here in the UK "building credit" is very much a thing; I'd be very surprised if it had no impact whatsoever on your creditworthiness in your country.

In Finland Luottotietolaki ("Credit Data Act", https://www.finlex.fi/fi/laki/ajantasa/2007/20070527 - no translation) limits the allowed data in credit data registries to specific types of negative entries, such as debt adjustment, failure to pay within 60 days, attachments, etc.

So you can't really build credit as such. 90%+ of people have zero entries in credit data registers.

Don’t you think it’s bad for a society to have a system that encourages people to get loans?

I know for the businesses, it makes perfect sense to have a credit system, it’s just that I appreciate it’s not a thing over here: people should incur as little debt as possible.

There is bad debt and good debt.

Getting a credit card and spending up to the limit while only making the minimum payments is bad debt. Buying a luxury car that's more expensive than you can really afford because the car dealer talked you into it is bad debt.

On the other hand, if you need a car to get to work, getting a car loan for a practical car is probably good debt. If you're married and about to have your second child and need a house, a mortgage is probably good debt because you're building equity, the house might appreciate, and anyway the alternative is throwing away a similar amount on rent.

Point being, it is probably not best to always seek to minimize debt. There are trade-offs to consider. Often, avoiding debt is better, but sometimes the negatives of debt are more than outweighed by some opportunity it unlocks.

So is it bad for society? It depends on how much bad debt it encourages and how much good debt it encourages.

Where this becomes "bad for society" is when the customer _has to_ take on debt for the sole purpose of building a credit score. Some of us would prefer not to utilize debt at all, but if we want to (for example) rent an apartment we may be _required_ to have a credit score. Even if we offer to pay the full term's rent up front. Source: Experience.

You're assuming that "take on debt" means literally taking on debt that you don't pay back quickly. Building credit doesn't require actually going into debt; you just need to have a credit limit available to you, that you don't abuse. Absolutely nobody "_has to_ take on debt for the sole purpose of building a credit score", as you put it. Someone building credit should only use credit that they can pay off immediately. You don't "go into debt"; rather, you funnel/proxy money you already have through a creditor.

Building credit means you could put yourself thousands of dollars in debt... but you don't. 90% of building credit is demonstrating restraint NOT to use credit dangled in front of you. In the rare instance where you take advantage of the ability to use more credit than usual, you pay it off within a reasonable amount of time. The credit industry is predatory, to be sure. But that's only for the idiots who believe they're "able to" or "expected to" use all the credit afforded to them. It's about seeing all that possible "green" in front of you and NOT using it, or using it sparingly and responsibly.

>> Some of us would prefer not to utilize debt at all

So don't. Build your credit by buying groceries on a credit card, and paying it off every month. You're not really going into debt; you're just postponing paying your groceries by a week or two. You can build a near-perfect credit score without ever paying a single cent of interest.

> You're assuming that "take on debt" means literally taking on debt that you don't pay back quickly.

No, I'm saying I don't want to have anything to "pay back" to anyone. _You_ are free to live differently, I just want the option to complete my transaction at the time and move on. Yes, paying back debts on time prevents bad outcomes, but so does not taking on the debt in the first place. And objectively it's a much more rock solid way of making sure your finances don't get out of whack. I've never met anyone who says "I'm bad with debt," but yet many American's have suffered bad consequences from debt.

> you funnel/proxy money you already have through a creditor

A service I don't want, get no value from, and increases the cost of the goods I consume because they aren't offering it for free.

> Building credit means you could put yourself thousands of dollars in debt... but you don't.

Not quite, you could actually be carrying debt you aren't able to pay back, but are able to make payments on. In fact - it's in the credit industry's best interest for you take out lots of loans that you _can't pay back_ but _can_ make payments on because the (often massive) interest is the money maker. Soon you'll have paid more in payments than you were actually lent. This has gotten so bad the government has had to get involved multiple times. I'm worried that credit scores are tools to create that situation, because of this alignment (think it about like this - are you the customer/priority? or is it the lenders?). Sort of like casinos wanting you to think you're "up" or close to a big score when in reality you're in the red. (And don't get me started on the opaqueness of the systems, lack of recourse for errors, and oh yeah - the security negligence that leads to large scale losses of sensitive data...)

> "You're not _really_ going into debt;"

Aw come on, if you have to put "really" in italics you already know I'm not gonna buy it. :-)

I get that I can have a good credit score, I get that lots of people don't mind having one. To each their own. I'm just annoyed that I can't opt out. That "not having a credit score" is increasingly not a choice I can make, nor can my children.

There are certain transactions that don’t begin and end with the payment of the cost of the service. When renting an apartment, you are able to cause far more damage to the apartment than the rent you pay, hence the apartment owner has an incentive to also consider what kind of person they are renting an apartment to.

A credit check serves as a proxy for someone who cares about their future reputation and hence is less likely to cause damage to an apartment, and if they do, then they will pay for it. Similar reasoning applies to other rental businesses such as hotels, cars, tools, equipment, etc.

To be clear - I 100% understand why people who want to do credit checks like credit scores. It's not that they have no value, it's that they have too many down sides and it bothers me that it's increasingly difficult to "opt out."

Well, what are you supposed to do if you would fail the credit check (but pass the identity check)?

Live nowhere?

Because if you won't pass the credit check for one property agency, you won't pass for any of them.

I've been in that situation. I had to pay 14 months rent up front. Crazy thing is I had the money and could pay it fine, but I couldn't pass a credit check to pay exactly the same amount monthly.

Actually the crazier thing is they required 12 months rent up front again, for the second year. You'd think by then I'd have a track record of paying rent.

All because paying rent for many years does not count towards credit rating, even though it's highly regular and the single largest outgoing for most people. (Paying mortgage does count. Annoying.)

I have an hard time understanding your point.

Sure I agree that paying rent should count towards credit rating, but that's not an argument against credit rating.

A bad credit rating means that it's a bad idea giving you a unsecured loan... that's all. An apartment is sadly pretty close to a loan, even more so with all the renter protection you get out of it.

Paying the full rent in theses cases make sense then.

My point is that in the lostphilosopher case, it was maybe simply used as an identity check, making sure it wasn't from a criminal. The resulting credit score wouldn't matter because of the full rent.

> You'd think by then I'd have a track record of paying rent.

Well, if they feel safer that way, again make sense. Why won't you personally give me a loan? The same apply to that case.

> An apartment is sadly pretty close to a loan, even more so with all the renter protection you get out of it.

A place to live is also a basic life necessity.

Something is very wrong in a society where a "bad credit rating", which can arise from many things (some of them having nothing to do with credit - agency malpractice comes to mind), threatens homelessness _even when you can afford to rent_.

I am very surprised that they allowed you to pay rent up front. This creates a huge liability for them because at least in the United States it becomes almost impossible to evict you.

I did the credit check - I didn't have a credit score, because I didn't want one. I had existing rental history, a drivers license, and W2s (all also required for the application). I don't think my identity was in question, but maybe it was? Regardless I rented at another place that didn't require a score, it all worked out.

Seems like most rental properties don’t report payments to the credit bureaus. The service my current landlord uses for online payments has an option to report payments to TransUnion. As far as failure to pay rent, I guess one’s judgements in housing court would come up in the background check.

Then I agree completely, it was pretty shitty of them and I don't understands at all their reasoning.

"good debt" credit used to buy productive goods (ie stuff that brings money in) that you could not afford otherwise, these are extremely rare if you are not a company, hence you can't really "build a credit" on "good debt".

>Don’t you think it’s bad for a society to have a system that encourages people to get loans?

Not really. Credit fosters growth. It's creating money out of thin air. It allows me to exchange rapid growth right now for interest payments later. If I'm young and want to buy a house, the time advantage of buying now versus buying when I have $100,000 saved in the bank far outweighs the fees and interest payments over time. Same goes for the utility value of a car or the ability to spend on a credit card for expenses incurred to go after a new career opportunity. So long as you have things planned out, credit is a very very good thing.

The types of expenditures you give as examples are not what make the American credit system strange and questionable.

Yes, it makes sense to take on debt if you want to buy a house and you have a steady paycheck.

However, it's not obvious that it makes sense to take on debt to pay for things you already have money in the bank to afford. Why do I borrow $100 to buy groceries every week? I have more than $100 in my bank account at any given moment. Why do I borrow $3.50 to buy a coffee at Starbucks? I'm constantly borrowing money that I don't need, and then paying it back within a few weeks, just so that I can prove that I'm a responsible debtor.

This really becomes a problem when people use credit to pay for things they can't afford, of course. Still, the whole system of taking on debt for every minor purchase, just to prove that you'll pay it back, is sort of absurd.

> Why do I borrow $100 to buy groceries every week? I have more than $100 in my bank account at any given moment. Why do I borrow $3.50 to buy a coffee at Starbucks? I'm constantly borrowing money that I don't need, and then paying it back within a few weeks, just so that I can prove that I'm a responsible debtor.

I do it because I get a 1-3% rebate on all my purchases. That's free money for me.

Before I had a credit card that gave me a rebate, I bought everything with a debit card. I still had a credit card, but it was only for emergencies.

> Still, the whole system of taking on debt for every minor purchase, just to prove that you'll pay it back, is sort of absurd.

You don't really need to use the credit card to establish credit history. Simply having one is enough. A lot of people believe that to maximize the boost to your credit score, you shouldn't completely pay off the card, and instead carry a small balance every month, but that's a myth.

> I do it because I get a 1-3% rebate on all my purchases. That's free money for me.

In your mind it's a 1-3% rebate, but in actuality you're paying for it anyway due to merchant fees, etc.

If we're going to question the overall system, then not having credit cards would likely mean savings for pretty much everything you would buy today that uses a credit card as a facilitation of payment.

> In your mind it's a 1-3% rebate, but in actuality you're paying for it anyway due to merchant fees, etc.

Most US businesses don't bother with offering discounts for cash/debit payments, so it's not like cash-only lifestyle will generate dramatic savings.

You're missing the point.

If (a) everyone who owned a credit card actually had the means to pay for the good/service with available cash (even if not literally in their pocket) then (b) credit cards wouldn't be necessary and thus (c) good/services that typically use credit cards would be ~1-3% cheaper. In other words, the people who are getting rebates are artificially getting them b/c if credit cards didn't exist, all goods/services would be cheaper.

Cash has its own costs:

* someone needs to drive to the bank to ensure the register has enough pennies, quarters, and dollar bills to make proper change in the morning

* a system needs to be developed to prevent employees from stealing cash

* to avoid being a crime target, there needs to be a way to safely store larger amounts of cash

* there's a cost of an occasional fake bill being accepted by an employee

* someone needs to drive to the bank to deposit the day's earnings into the bank account

It's not like the US has zero businesses that deal exclusively in cash, so there should be success stories of disruptive startups going against the establishment by foregoing merchant fees and passing the savings on to consumers.

But outside of Arco am/pm gas station, I struggle to find a good example where a cash-only business, or chain, or a sector would offer consistently lower prices than their credit-card-accepting counterparts.

Which is exactly why it's not "free money" as the GP suggested.

But credit cards _do_ exist. Who cares about hypotheticals where they don't?

But credit cards do exist. And the person is getting a rebate over paying cash.

You're not really getting a rebate, the extremely high merchant fees in the US are paid by the customers.

While it makes sense for the individual, high fees should be regulated.

> You're not really getting a rebate, the extremely high merchant fees in the US are paid by the customers.

I don't know if it's the same in the US, but in Canada, the price can't be affected by the way you pay for it. That push some places to refuse cards.

That means that customers who doesn't use credit cards, pay for my rewards too.

Well, if you never put any transactions on the card, it's liable to get closed by the bank without notice - I had that happen with my oldest credit card after a few years of not using it, which hurt my credit score because you want your credit lines to be as old as possible.

> Why do I borrow $100 to buy groceries every week? I have more than $100 in my bank account at any given moment.

Having just disputed a merchant transaction last week, I have one reason - to introduce an additional layer of consumer protection at no additional cost to the consumer. If I had transacted in cash, I would've been screwed. And this was a major nationwide retail chain, not a dude in the alley peddling stuff that "fell off the truck".

> no additional cost to the consumer

Merchant fees are very high.

> If I had transacted in cash

The only difference with a debit card is a function of regulation and the network rather than actually being a credit or debit card.

> Merchant fees are very high.

But there were no discounts offered for paying cash.

The parent comments are discussing benefits the American credit system as a whole not the benefit of an individual using a credit card in America. Other countries have much lower merchant fees due to surcharges on credit transactions and/or regulation restricting merchant fees.

>This really becomes a problem when people use credit to pay for things they can't afford, of course.

This is exactly it. People who use credit to pay for things they can't afford are a risk, but how do you identify those people efficiently? Seems logical to test for that by starting with low credit limits rather than immediately offering loans for items of high value like a car or house.

The consumer gets a free 30-day loan and the issuing banks (via credit agencies) get valuable data.

The credit card companies compensate you for "borrowing" $100 to buy groceries, which makes it, de facto, a good idea, assuming you can actually pay for those groceries anyway.

I think that, in general, it's bad when people take out loans for things that they don't need and can't really afford. I'm mostly not a fan of, say, buying a big screen TV on credit.

However, although some will overspend, it's mostly a positive that home ownership isn't limited to the wealthy (and even the moderately wealthy may not have sufficient cash on hand in high CoL areas). Furthermore, even those young people with great jobs probably need to borrow for purchases like cars.

So I don't think people should overextend themselves but I don't have a problem with people using debt sensibly as a tool.

> buying a big screen TV on credit.

I think it's fine as long as it's always kept within reason.

If I have a disposable income of $500/month, and I want a $1,500 TV, I might just put that on the credit card. If I have a 20% APR on my card and pay it off in three months, I only pay a little over $50 in interest (Note for someone else that decides to check the math: Remember that many cards have a 30-day grace period on purchases before they start collecting interest). I might think it's worth it to pay an extra $50 to get that $1,500 TV now rather than 3 months from now. Maybe it's actually a $2,500 TV and it's on sale for this week only. Better yet, maybe the store is offering 0% financing for 12/18/x months, which is far longer than it'll take me to pay it off anyways.

Of course, the "within reason" part is what kills people. If my disposable income is under $100/month, then purchasing a $1,500 TV on credit is probably a bad idea. Heck, even saving for a $1,500 TV is probably a bad idea.

> If I have a disposable income of $500/month, and I want a $1,500 TV, I might just put that on the credit card. If I have a 20% APR on my card and pay it off in three months, I only pay a little over $50 in interest

Why don't you take it from the pile of money you are sitting on? And if you don't sit on a pile of money, should a new TV really be what you are worrying about?

> And if you don't sit on a pile of money, should a new TV really be what you are worrying about?

Absolutely, if the person wants to direct their resources toward a new TV. Generally speaking, people should spend their money on whatever they want to. The inherently subjective matter of what to do with one's life and time is properly entirely up to the person in question.

I bought my first big screen TV on Amazon store credit back when I was in college with a typical college student income. 18mo/0% APR is awesome when your credit limit and bank balance is $700.

> Don’t you think it’s bad for a society to have a system that encourages people to get loans?

It's more nuanced than that. It encourages people to get a line of credit and demonstrate that they can be responsible with it. There's no need to actually be in debt, and this doesn't help your credit score.

In the UK, I can build an excellent credit history by having credit cards, but paying them off within the month, incurring no interest whatsoever.

I would agree with the complaint, but I'm surprised, and somewhat can't believe you don't have something similar "over there". (I don't know where over there is, of course.)

The problem is that the credit system was not designed for society, it came out of a business need. In reality, you don't need a good (or any) credit score if you don't need a loan... but if you do need a loan, the person giving a loan wants to know if you're likely to pay them back.

The credit agencies decided they were scummy enough to collect as much personal info as they could, and sell it to those companies so they could asses that risk... When you get a full credit report, its actually data about you and your accounts, the score is just the distilled version of that data to make it "easier".

Finally, credit score is not always the last straw, depending on what kind of business you're working with. Many smaller companies might be willing to work with you regardless of your credit score, however, they might adjust the terms of the deal...

I’m from The Netherlands, so actually fairly close. I also know France doesn’t have a credit system as described, and wouldnt be surprised if that’s the case for a large part of the EU.

I think in general it’s a matter of philosophy: so you think that loans are there to serve society (mortgage is a good example of a “necessary” loan), just like banks have a function to society.

I personally can see both sides of the argument, but am I really not feeling like I’m missing out on something without it. Just checking your current financial status rather than historical seems sufficient to me.

I see both sides also, I think its probably not good for society to be able to amass huge amounts of debt, I think the ability to get large mortgages is part of why housing prices are so astronomical.

People are buying and selling at huge values, and maybe winning a little here and there on upswings in the market, but the banks win either way with their steady monthly payments.

> I’m from The Netherlands, so actually fairly close. I also know France doesn’t have a credit system as described, and wouldnt be surprised if that’s the case for a large part of the EU.

The Netherlands has the Bureau Krediet Registratie, which is pretty similar to the credit ratings in the US. (Arguably, the credit rating system in the US is slightly more forgiving than the BKR, but that's a separate matter - the Netherlands definitely does have this system).

France is actually the outlier for not having one - Germany and Spain both do, for example, as does the UK. And of course Canada, the US, and Australia have similar systems as well.

The difference is that the BKR acts more like a blacklist: if you never have taken any loans you will never have a bad rating, whereas in the US you need to actively obtain and manage your credit to get a good rating.

This is not true. For example, when I first moved to the US, I was unable to get a "real" credit card, much less a car or home loan.

I was effectively required to get a secured credit card to demonstrate my "ability" to repay "debt". After doing this for some time, I was able to get a normal credit card, with a far higher limit and no security.

It's a little farcical really, that my ability to pay back a few hundred dollars monthly granted me access to a credit line far in excess of my monthly income.

> This is not true. For example, when I first moved to the US, I was unable to get a "real" credit card, much less a car or home loan.

Yes, that's not because you had a bad credit score, but because lenders in the US are more conservative and are generally unwilling to lend money to a person who doesn't have a good credit score. This applies especially to people who aren't citizens, even if they have legal residence and work authorization. You didn't have a good credit score - or any score at all. That doesn't mean you had a bad rating. If you'd had a bad score, it would have been much worse that what you describe.

The original statement was that "if you have never taken any loans, you will never have a bad rating". This is true in both the Netherlands and the US (barring cases of fraud and identity theft, which occur in both countries).

I think it is. I only spend what I can afford to, and I have never carried forward a credit card balance. The only reason I use credit cards is because of the consumer protections, benefits, and cash back I get from them. Assuming spending behaviors are fixed, one can make more money buying things with a credit card than buying things with any other payment method. That said, none of those aspects _should_ in any way be inherent to holding debt, but so it goes.

I don't object to _all_ debt. Yes, I took out a loan to buy a home and pay for my education. But the former made more financial sense for me than renting, and the latter is paid off and a big reason why I have the income to afford a home in the first place.

It's problematic how normalized holding credit card debt is in the US (at least, it is more so normalized than elsewhere in the world).

> It doesn't really matter to lenders whether you "game" the system;

In this case "gaming the system" means taking on debt and paying it off. So pretty much if you can "game the system" they have good reason to believe that you can pay off future debt. So I'm not sure really why someone would calling "gaming the system." One thing I find nice about the system is that you can not have much capital but still get a good credit score, which tells a bank that you may not be rich but you prioritize paying back debts so you're low risk. Enabling you to get loans you normally wouldn't or ones at a lower rate.

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