What are you guys opinions on your credit score system ?

Our credit scoring system, and our cultural comfort with debt, are two different things. Credit scores make it relatively easy for lenders to see how responsible a person has been with debt over the past 7 years. That’s it. It affects a lender’s decision on how much credit they want to give you, and what interest rate to put on it. Before we dig in: our credit system is radically free-market. Regulations are largely oriented around transparency and disclosure. There is no “typical” credit card user. Running up debt and paying interest every month is common. Paying off the card in full is also common. Using a card to buy gas and paying it off every month is common. Putting emergency expenses on a credit card and paying it off over time is common. Credit card companies make money from multiple sources. One source is interest. Another source is that they take a percentage of each transaction, charged to the seller. Another source is through financing of payment plans (businesses are often willing to pay these companies a few percent of a transaction in return for financing, which means they can lower the rates, even as low as 0% interest in some cases. Businesses do this because it makes customers more likely to follow through on transactions). Credit card companies run premium brands targeting high income earners, like Chase Sapphire Reserve or American Express Platinum. These cards charge a fee, and pay out benefits even greater than the fee. As a result of the barrier to entry and higher credit score requirements, these cards generally select for high-income people. Those kinds of people are highly desirable customers for businesses, because they tend to spend more. As a result, the credit card companies increase the percentage they take from each transaction for these cards, which is a part of how they can afford to give such good benefits. Why you might want a credit score: This system gives us more access to these credit deals, which tend to benefit sophisticated consumers. A good credit score is generally necessary for this. Our mortgage system allows for 30-year, fixed-rate, refinanceable loans, and we have very expensive real estate. A good credit score gets you a better term on those loans. Many landlords ask for a credit report from prospective renters, because it’s generally indicative of whether you pay your bills on time. Recovering from a bad credit score can take a while, up to 7 years. The single biggest factor is paying your debts on time. How long it takes exactly: it depends a lot on how bad the score was, why it was bad, and what is meant by a “good score”. Credit scores are not just a number that goes up and down, but are informed by a formula. How much debt do you have, relative to how much you’ve been issued? How often do you miss payments? How long does your history go? How many of your debts have you defaulted on, and for how much money? All of these factors go into the score. Something to note with our credit system is that, by and large, consumers are being issued debt that they’ve agreed to. Lenders fit the terms of the loan to the risk profile of the person, because they don’t want to issue loans that can’t be paid back. You can look at our system and find problems with it, but you can also say that those involved are either giving informed consent, or choosing not to be informed. By default, you receive a statement in the mail every month, which lists out principal, interest, interest rate, and any fees. There are things I would change if I were in charge, but I don’t think it’s necessarily the government’s business to interfere in consensual financial arrangements between two parties. Free markets, with some protections and backstops, do a decent job of regulating debt in my opinion. One place this breaks down, however, is student loans. Student loans are commonly for tens of thousands of dollars, and sometimes for hundreds of thousands of dollars. These are exempted bankruptcy protections, and targeted at 18-year-olds. Because of this, lenders have much less incentive to consider “ability to repay” when looking at what the loan is being issued for, and how much is being charged by the university. They generally don’t rely on credit scores as much, because they target 18-year-olds, who don’t have much history. “Student loan forgiveness” is used by the federal government to push people into public sector jobs, where they can be paid less than they would be in the private sector.