FICO to incorporate buy-now-pay-later loans into credit scores

I left the U.S. several years ago and have completely forgotten about "credit scores" in this sense. I get reminded every once-in-a-while how things that used to feel so obvious and inevitable and necessary for society to function are completely artificial.

Society itself is completely artificial. Money, property rights, laws, taxes, even the words I'm using to write this very comment... all of these are just human inventions, reified mythology.

What's the process of vetting people for loans in your current country?

What struck me about credit scores is that, from the outside, it seems so obviously ripe for corruption and predation. But growing up, it just felt that it was the way things had to be; how could it possibly be different?

Where are you now? And what is the system like there?

From my extremely naive understanding, obtaining credit and low rates is, in general, much easier in the US than other places. So it makes sense to me that it has “artificial” tools to help determine risk. How do other countries handle this and provide the availability that can be found in the US?

You can have debts totally only up to a certain percentage of your income. Banks require that you produce a monthly budget demonstrating that you have a certain amount left per month after all expenses and debts are paid. You have to be able to prove this by giving them access to your tax and financial records. Most rates for things like homes and cars are consistent from bank to bank across the country.

It's useful to remember this when tempted to make arguments that assume there is a Right Way to do things. We are exploring a massive possibility space where components interact in non-linear ways. There isn't a right way, there is no golden path. The reality of our society is an integration of each individual experience. We build theories as abstractions of that integration in order to manage and engage with that massive complexity. It can be useful, as long as we remember that they are abstractions. When we forget that our abstractions are only abstractions, we tend to cause additional problems on top of that which we were already trying to engage.

Can't speak for every country, but in Sweden for example tax data to a certain level of detail (income by labor, income by capital) is publicly available for each citizen. Same for debts. And debts that go to the collection authority, which has a very dark name (kronofogden), are very public and somewhat worse than having to wear a scarlet letter. So credit institutes have enough of an idea of your finances to decide your rate.

And how do lenders assess previous defaults when underwriting new loans?

From what I've seen, most developed countries actually do have the equivalent of the US credit reporting agencies. It's just that the functionality goes by different names and is distributed across several different types of entities rather than being centralized in three credit reporting agencies (plus Fair Isaac Corporation / FICO which is a vendor to all of them).

For better or worse, it's not really possible to have a modern economy with high growth rates unless lenders have a reasonably reliable way of quantifying borrower propensity to pay. Debt to income ratio is a piece of that, but some people are just deadbeats.

Banks are required to prove their loans are affordable. They can only lend someone an amount that they can prove the borrower can afford.

In my experience, rates are not low in the U.S. They are high because high risk loans are able to be granted.

The availability of debt for things like housing and cars is very complicated, but high taxes, a high degree of education, livable minimum wages, and realistic employee rights helps increase stability and decrease risk. I don't say it to be flippant. It is more complex than even I understand. It's only to say that, given that these systems are designed artificial systems, there are multiple implementations that work under various constraints and incentives.

To be clear, credit reporting and tracking is not the only function of credit scores in the U.S. These functions do exist elsewhere and are often called "registries." They are not private companies, but instead public centralized institutions. Likewise, it is not possible for private companies to loan debt to citizens, even by proxy.

For bankruptcies and defaults, there are similarly court records from public institutions, which you give a bank access to. They cannot search these sources without your consent, though of course they will then not loan to you.

What country is this?

The US also has low interest loans for people who can probably afford the loan beyond what a credit score indicates. That is a conservative form of lending and it’s true that the US supports a wider range of lending than most countries.

> how could it possibly be different?

This is the aim of every culture & political system: to remove the ability to even consider that other ways of doing things are possible and that other countries doing things differently are terribly flawed compared to the paradise you live in.

In some countries a credit score is a mysterious value calculated by a private company based on patterns of consumerism and money usage that greatly affects your life. You must earn the score through engaging with other private companies, to the company's profit. This is why in the US & UK people get credit cards early, to improve their score whilst trying to avoid the debt trap.

In Scandinavian countries there are registries of your income (from the tax authority), your debts (including buy now pay later which are technically flexible loans) and any bad debts you have that have gone to debt collection. No history of previous balances, repayments, how long you've had a credit card, etc... Companies use this to come up with a score, either themselves or a company like Bisnode will do it for them. So basically it's a simpler calculation based mainly on current situation than history.