[quote name='frob']
Perfect repayment history accounts for roughly 300 points of your credit score.

What is the calculation that results in roughly 300?
[/quote]

FICO scores go up to 850 'points', about 35% is from recent repayment history. 850*35% = 297.5, roughly 300.

As a European, I'm totally surprised by this post.

People in the US (assuming this post is made in the US) get a credit score attached to them? Is it a company or the government doing that?

There are currently three major credit reporting agencies: Equifax, TransUnion, and Experian. They are not run by the government. They are private companies that use their own systems to calculate the score, based on a formula they call "FICO".

The companies have agreements with lenders such that lenders can have access to the data in return for submitting records to the reporting agency. This is part of the credit agreement the individual signs with the lender. It was much less common several decades ago before computers were commonplace, but it has been ubiquitous for a few decades now.

Because the ability to gain credit is such an important thing in society, there have been many law added over the past few decades that regulate these agencies. They must allow individuals to view their records for free every year, they must allow individuals to dispute errors on the reports for free and they must clean up the records if they are incorrect and harmful, etc. Before these laws were added the credit reporting agencies were littered with major errors that destroyed people's credit and there was no accountability for the problem.

Even with the regulations, it is still normal to see many minor errors on credit reports. It costs companies time and effort to correct the errors and trace them back to their source; it costs them nothing to leave it. Even when they make changes sometimes other companies will re-report the information and push the errors back in to the system. Generally they won't bother with errors unless the individual notices it and makes a big issue about it.

[font="sans-serif"]It is very difficult for a consumer to know in advance whether they have a high enough credit score to be accepted for credit with a particular lender. This is due to the complexity and structure of credit scoring, which differs from one lender to another.

i.e. there is no literal score in some central database. I've paid the $5 for a check before and it's interesting, but it can also depend which source lenders use to get their data. The same principles apply, you can see in surprising detail the things which are held on file as good/bad.[/font]
[/quote]

Just because it is hidden it doesn't mean there are no scores. Having them split up doesn't mean there are no scores either. The only difference as far as I can tell in the US is that the are centralized and easily accessible. Scores still exist.

The way the centralized score is used by the institutions differs just as much as the way calculating the score differs in the UK I'm sure.

To the OP, yes, your delinquency is absolutely enough to damage your credit, and severely. Particularly because you weren't just delinquent, you had one of your debts (at least) go to a debt collection agency, and that's pretty serious. That'll shred your credit. Your score will go back up over time (it'll take you a couple of years to break 700, but if you're careful it'll happen).

But the condition is that you personally will have to be careful. It's not relevant how fair you feel that the process is, if you want and will utilize credit. The way that it works is the way that it works, and the responsibility is on you to understand the process and cooperate with it in order to reap its benefits.

[quote name='Katie' timestamp='1305713502' post='4812430']
Erm -- it happens in Europe as well...

It doesn't in the UK. People think it does but there is no such thing here as a literal "credit score", instead there are different organisations who maintain data about you which can be requested to help companies decide how risky you are.
[/quote]

That's all we have in the US. There are three different credit rating agencies, each of which maintains its own score independently of the others. It's possible to have great credit scores with two of them, and a worse one with the third. Companies can request your information from any or all of them.

edit: I have a relevant question though. I never had a credit card through college as I was fine just using debit. Would that negatively affect a credit score or do nothing at all? I just got one when I moved to Canada, would that be reported to the US credit bureaus?

It does have a negative rating on your credit to not have a credit card insofar as you can't build a positive credit history for that component of it. You're better off taking out a card and buying one bag of chips per month with it and then immediately paying it off than you are just not having a card because you don't really need one. There are complicated formulas for how opening a credit card affects your score versus opening five cards, versus closing a card, and on and on. It's rarely as direct or simple as most people would like. As for getting a card in Canada, I'm afraid I don't know.

[quote name='Katie' timestamp='1305713502' post='4812430']
Erm -- it happens in Europe as well...

You just probably don't know about it so much because a lot less people deal with the agencies directly.

Depends.

Most of the time, when taking a loan or mortgage, the approval is checked individually and you must prove that you will be able to pay back (6 month salary history, employment record + 1 or 2 "witnesses" that will pay back the debt if something happens to you). In addition, any loan debts are most often automatically deducted from your paycheck, so nonpayment is a non-issue unless you do go bankrupt and the people covering for you do so as well.

If you don't have the above in advance, you won't be able to get a loan at all. Credit cards matter much less and the limits tend to be very strict so your payment history matters much less, once you hit the 200 or 500 EUR initial limit (first 2 or so years) it's simply blocked until you repay (see automatic deduction) or you default.

While credit scores might be kept internally for increases in limits, I don't recall hearing people having trouble with actual "credit score" for credit cards or bills. The biggest limiting factor will be full-time employment salary and your employer's approval.

In many ways this is quite annoying. If starting your own business, not having full-time job, being a student, getting first job or similar you can basically forget about a standard loan and a mortgage obviously requires property.

YMMV, these systems are changing, but for typical "working man" the credit will usually be managed very conservatively and safely as far as banks are concerned. Most people will never take anything riskier so their credits will remain within safe limits determined by bank.

Europe is also diverse, lots of differences between countries and UK might be a bit more US-like, continental tends to be somewhat conservative. Anything debt or credit related will tend to be tied to salary.
[/quote]

Sounds biased in favor of the lender and employer, less in favor of the individual. It seems to also ignore the benefits of risk and reward.

Much of that is similar in the US; you need to establish good credit to get credit, and you need to convince the lender that you can repay the bills by showing proof of income.

In the US you don't generally need someone to co-sign the loan (what you called a witness) unless you have poor credit or no proof of income. A positive credit history is easily established on your own without assistance.

And you certainly don't need your employer's approval. That seems draconian. Your employer has no need to know what you do with the rest of your life. Anything unrelated to the work you perform on the job is out-of-bounds for employers. Having the employer pay your creditors directly places way too much knowledge and power in the hands of your boss. It also tends to force people to work for established sources, instead of allowing contract work and other private enterprise.

Those credit limits are extremely tiny in comparison. A 200 Euro limit for two years seems crazy. Why even bother with credit at that point?

On the one hand yes, it is safer for the lenders if they have these guarantees. On the other hand, as you pointed out, this ties the hands of the individuals and makes it difficult for recent graduates to surge ahead, difficult for entrepreneurs, and difficult for "disruptive growth" that tends to have extra risk but also tend to transform fields for the better.

The rules you described would tend to just reinforce the status quo. Those who have can have more, those who don't cannot. Where is the ability to task risks, and to balance risk vs reward?

[quote name='creditscoring.com' timestamp='1305735024' post='4812574']
[quote name='frob']
Perfect repayment history accounts for roughly 300 points of your credit score.

What is the calculation that results in roughly 300?
[/quote]

FICO scores go up to 850 'points', about 35% is from recent repayment history. 850*35% = 297.5, roughly 300.
[/quote]

The scale starts at 300, so the range is 550, not 850. Where did you get that information?

[quote name='frob']30% on debt/capacity ratio
[/quote]

Where does that information come from?

Sounds biased in favor of the lender and employer, less in favor of the individual. It seems to also ignore the benefits of risk and reward.

Yes, the lower end of credits is indeed about 'safe". Credit isn't intended primarily to be blown frivolously, but for careful planning of the future.

It does however prevent the housing fiasco that occured, where bad credit was given out knowingly.

In the US you don't generally need someone to co-sign the loan (what you called a witness) unless you have poor credit or no proof of income.[/quote]
That is just one form of loans. They tend to be fairly convenient since they don't require any credit history and, even without mortgage, provide leverage. But people have gotten into debt problems, inheriting debts or co-signing without scrutiny. It's a social mechanism - if you have several people vouching for you with their money, you are likely good. Either way, banks don't care, even if you die, they can milk someone else.

And you certainly don't need your employer's approval. That seems draconian. Your employer has no need to know what you do with the rest of your life.[/quote]
This is where that whole "socialism" comes into picture. Loaners prefer people with long term, stable employment. Employers prefer (and at higher tiers require) some insight into personal life.

And obviously, this type of credit isn't available to entrepreneurs or self employed people. But there are banks that will loan anyone, just wear kneecaps.

It is customary at all higher tiers for employers to have leverage over employees via loans. This exists worldwide. People will not get promoted into roles of responsibility until they have something to lose at whim of employer. It may sound ugly, but it's mostly standard practice. Loans are just the easiest way to achieve this. People are much more obedient when they have a job to keep so they don't lose a house. Other, but similar mechanisms exist, depending on domain or area. Most of this is unwritten though.

Anything unrelated to the work you perform on the job is out-of-bounds for employers. Having the employer pay your creditors directly places way too much knowledge and power in the hands of your boss. It also tends to force people to work for established sources, instead of allowing contract work and other private enterprise.[/quote]
Yes. Welcome to Europe. We dun' need no dem risk takers here, climb the ladder.

Those credit limits are extremely tiny in comparison. A 200 Euro limit for two years seems crazy. Why even bother with credit at that point? [/quote]It depends on income, wealth, etc... It's just a number, but your limit is increased based on that individual card's history. It's individual choice though, by bank, by account, etc...

makes it difficult for recent graduates to surge ahead, difficult for entrepreneurs, and difficult for "disruptive growth" that tends to have extra risk but also tend to transform fields for the better. [/quote]
Or, it can give robber barons free reign.

The rules you described would tend to just reinforce the status quo. Those who have can have more, those who don't cannot. Where is the ability to task risks, and to balance risk vs reward?
[/quote]It's not. But enjoy free education, healthcare, infrastructure, etc...



Quick - how many big exit success stories from Europe do you know? Then again, there's nothing preventing anyone from registering a company inside US and operating under those rules. It's somewhat of a standard practice and most startup (tech at least) incubators have that as operational plan. There's also plenty of exchange, the only downside is having to work around the lack of visa, so spending 8 3 month vacations in US in a row is nothing unusual.

There's also plenty of exchange, the only downside is having to work around the lack of visa, so spending 8 3 month vacations in US in a row is nothing unusual.

It's actually rather easy to get a US investors visa if your company exceeds a certain turnover threshold and you create employment in the US.

The rules you described would tend to just reinforce the status quo. Those who have can have more, those who don't cannot. Where is the ability to task risks, and to balance risk vs reward?

It's not. But enjoy free education, healthcare, infrastructure, etc...
[/quote]


Tax-supported programs are hardly "free". You pay for them, just not directly.

[quote name='d000hg' timestamp='1305738751' post='4812605']

[font="sans-serif"]It is very difficult for a consumer to know in advance whether they have a high enough credit score to be accepted for credit with a particular lender. This is due to the complexity and structure of credit scoring, which differs from one lender to another.

i.e. there is no literal score in some central database. I've paid the $5 for a check before and it's interesting, but it can also depend which source lenders use to get their data. The same principles apply, you can see in surprising detail the things which are held on file as good/bad.[/font]
[/quote]

Just because it is hidden it doesn't mean there are no scores. Having them split up doesn't mean there are no scores either. The only difference as far as I can tell in the US is that the are centralized and easily accessible. Scores still exist.

The way the centralized score is used by the institutions differs just as much as the way calculating the score differs in the UK I'm sure.
[/quote]
I'm looking at an old copy of my credit report now, it's 22 pages long and lists all my bank accounts, loans and details of any blips on repayments. Nowhere is there a score as a single number anyone could simply refer to... every company who wants to check my credit history does their own analysis of this report. They might internally allocate a score but that's totally arbitrary to that 1 company. Even for the companies keeping the credit data, there is no score... just a big list of raw data.