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Many countries don't use credit scores like the US - here's how they determine your worth
Many countries don't use credit scores like the US - here's how they determine your worth
Christopher CurleyAug 21, 2018, 00:13 IST
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A credit score is a number, used in countries like the US and Canada, which aims to predict your likelihood to meeting financial obligations like paying back a loan.
Having a low credit score can make it harder and more expensive to get a mortgage, for example.
Mant countries do not have a credit score system like the US, instead only tracking negative credit marks rather than tracking positive ones.
In the US, a good credit score can feel like a key determinant of success. It defines how good an interest rate you can get on a car loan or mortgage, the quality of credit card you can get approved for, or if you'll get approved for any credit at all.
The better your score, the better the perks. A bad score can become a black mark that leads to missing out on the home you want (credit checks are a common aspect of apartment applications), higher car insurance rates, or even difficulty getting a cell phone, according to Nerdwallet.
But as monolithic as the credit score seems, many countries in the world handle credit very differently - with many having no credit score system at all.
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Here's how 10 countries deal with credit, and how they score your financial worth.
Japan "doesn't have an official credit scoring system," according to Matthew Hague, a certified financial planner who lived in Japan and now often works with American expats in Japan. Your U.S. credit won’t matter unless you bank with an international bank that has an existing relationship with a counterpart in Japan, he told Business Insider.
Credit in Japan is usually between the consumer and the bank, and is based on factors like length of employment and salary.
"Some banks are OK lending to foreigners; some are not," Hague explains. "More traditional banks wouldn't even bother delocalizing their websites. If you can't read Japanese or fill out the forms in Japanese, you can't get credit."
2. United Kingdom
Travel to the United Kingdom, and there's a credit system much like the credit scoring system in the US. The UK has three major credit agencies, Equifax, Experian, and Callcredit (Noddle), according to The Telegraph.
Each agency scores you differently. Experian uses a 0-999 point scale (you'll get the best rates from having a score of 961-999), Equifax issues a score within the range of 0-700 (466-700 is ideal), and Callcredit provides a score of one to five, with five as "excellent" credit.
Similar to the US, UK consumer credit is based on factors like your payment history, age of accounts, and credit utilization, UK debt solution provider Harrington Brooks reported.
But the system has its differences, too: Getting on the electoral register to vote (or explaining why you're not eligible to) can help you improve your credit in the country, according to Experian UK.
3. The Netherlands
In The Netherlands, a person with a steady income who isn't defaulting on any existing debts (like missed bill payments) is generally likely to be judged creditworthy.
Unpaid debts are registered to the Bureau Krediet Registratie (BKR), the governing credit registry bureau, finance consultant Peter Gibney told Just Landed.
If you do end up with a negative mark, you could have it for the long haul. Negative marks on the BKR disappear five years after the initial debt is discharged, according to the BKR.
4. Canada
Canada's credit system is the most like the US system. TransUnion Canada and Equifax Canada are the northern brethren of two of the US's three major credit agencies, TransUnion and Equifax, according to the companies’ respectivewebsites.
And just like the US, credit in Canada is judged by factors like payment history, credit utilization, recent account history, and age of accounts, according to CBC News.
The major difference is that Canadian credit scores range from 300 points to 900 points, with most people needing a minimum score of 680 to get a good interest rate on a loan.
5. Spain
Spain has a credit register that tracks “virtually all the loans, credits, bank endorsements and risks in general that financial institutions have with their customers,” according the the Bank of Spain.
But like in The Netherlands, having “good credit” is more about staying off a bad credit blacklist, according to Spanish law firm Velasco Lawyers. Once on a blacklist, consumers remain there until the debt is paid off or six years passes.
6. Brazil
Brazil formerly had no formal credit scoring system. Lenders generally relied on negative reporting alone, and debts were removed from the credit register as soon as they were paid off, according to the Centre for Latin American Monetary Studies.
But that's changing. Starting in 2012, Brazil's government set rules for the creation of positive credit bureaus, leading to a coalition of the country's five biggest banks to form a credit research agency, the International Financing Review reported.
Other global companies, like Experian and Fair Isaac Corporation (FICO), have also stepped in and established their own systems in Brazil.
7. France
France has no major credit reporting agency. Instead, to pursue a mortgage, for instance, you'll need three months of bank statements and paperwork to prove your income, as well as proof of marital status (if applicable) and the sale contract, according to the French Property real estate service.
A bank will dig into your financial records and require a healthy 15% (at least) down payment and fees amounting to an additional 7%, French property-buying guide French Entreé reported.
8. Germany
Germany has a fairly sophisticated credit system.
Its main credit agency is SCHUFA, a private company that operates like the credit data brokers in the US, tracking open accounts, unpaid bills, loans, and fines, according to the Open Knowledge Foundation of Germany.
If you're just coming to Germany for the first time, your SCHUFA score starts when you rent your first apartment, open a bank account, or pay your first utility bill. Everyone starts at 100 and then their score goes down over time as they gain financial history. A score in the 90s is considered a good credit score.
9. Australia
Australia's system is currently in a transition period.
Previously, research into your financial worth and reliability as a loan recipient was based on a credit report that only showed your negative marks, i.e. loans in default or unpaid bills, the Sydney Morning Herald reported.
In 2017, however, that changed to include two years' worth of positive financial data as well, including regular mortgage and credit card payments, according to the Herald’s report. Thus, Australia is inching closer towards an American-style credit reporting system.
10. China
The People’s Bank Of China (PBOC) gave eight private companies license to implement credit score pilot programs in 2015. However, the bank has been pushing back on the companies’ efforts ever since, due to concerns about private company overreach as well as the government’s plans to develop its own credit scoring system, Business Insider previously reported.
The Chinese government is also in the process of implementing a mandatory "social credit" ranking system. Going far beyond positive credit score behavior, the social credit system peeks into every aspect of a person's life.
Not paying a debt will hurt your score, but so can infractions like a poor driving record or smoking in a non-smoking zone, Business Insider reported. A low score can keep a person from getting into good schools, buying plane and train tickets, and even affects who they match with on online dating sites.
With all these variables in how countries determine your worth, it's worth asking: How badly do we need credit scores, period? Hague, for his part, said he thinks less complicated systems of determining creditworthiness are best.
Lending "should be based on the ability of payments to happen," he said.
