this post was submitted on 14 Aug 2023
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The expectation of everyone having a credit card as soon as they can get one and paying everything with credit to somehow "build" credit. Sounds such a great way to get people into financial trouble at a young age.
On the flip side, without establishing some kind of credit record, nobody will ever give you a loan for a house or even a used car.
That's the part I don't get at all. How come is not having any credit history a bad indicator? If anything, it should tell that the person is financially stable to afford things without needing credit.
Where I live (and I think in other European countries too, with exceptions) it works other way around. Having a clean credit record is a good thing and only if you neglect your payments you get negative marks on your record. Having any negative marks generally prevents you from taking any new loans or financing (a good thing!) but negative marks will be cleared after debts have been paid off and some time has passed.
Consider two potential creditors:
Can you see how B is a less risky client than A? A is essentially an unknown risk, but B has demonstrated the ability to manage their debt. A could still get, for instance, a car loan, but likely not a mortgage. And B will get a lower interest rate.
Dept is fascinating, our system seems to be build around it. And still, I was raised with 'Don't spend money you don't have' which makes person A more trustworthy to me compared to person B, who seems to live a financially risky life. But of course the bank earns more with person B, paying interest. I would reward this behavior as well, but it's not the kindest system for gullible people.
How is A an unknown? They've demonstrated that they don't make a habit of spending money they don't have, which most people would consider conservative and responsible.