Credit scores are a scam to sell credit cards.
You take small loans each month via a credit card that you have to pay back. This increases an imaginary number that lets you take out bigger loans in the furure.
This is all tracked by private companies that you trust with your personal data. That, or you’ll not be able to take out a loan if you want to buy a house or start a business.
If you have a good credit score it means that you don’t overspend or forget to pay, which you can also achieve with a regular debit card by default. This doesn’t serve people, only the banks who expect that a number of people will overspend or not be able to pay their loans back.
Credit cards alone aren’t the problem. Forcing them on people with the credit score system is.
Coming from a civilized country where the credit score is calculated by looking at income, taxes and property, I cannot fathom how the US credit score calculation is supported by anyone.
A lot of people actually like it because it really doesn’t work the way OP said it did. They are partially correct, but you also get rewarded for perverse incentives. If you double pay your CC, it will actually slightly lower your credit score. If you have a lot of credit cards with no balance, that can also lower your score. The quickest way to buildup credit in the US is to get a card that has a 0% 18 Month introductory interest rate. Pay the minimum balance each month, and save the cash to pay it all off in 17 months. You will accumulate credit like crazy, holding a balance strangely increases your credit (until the balance gets too high or you start missing payments, then it will take a nosedive).
Interest, late fees, holding a balance, a lot of the bad stuff is actually weirdly good for your credit in the US. I mean it makes sense… they want to reward people who are stupid and pay interest, but actually have enough income to keep making payments forever.
When someone from the US remarks about their credit score, it always causes me to raise eyebrows. You can be poor and have a high credit score, it’s incredibly common.
One way to make credit scores more consumer friendly would be to make it totally transparent what data is collected, retained and transmitted when calculating the score. If you want to open a new line of credit, instead of having businesses look up all this shit behind your back you’d request a letter of credit and provide it to the business yourself, knowing exactly what is in it.
But no, instead it’s a total mystery how it is calculated and you just have to hope that they don’t get confused and make a mistake because it can wreck your life if they do.
In many countries, mine included, there’s no credit score system. We recently took out a bigger loan to buy a house and what we had to provide was:
- proof of a steady income (in our case from our employer)
- 3 months of bank account history (to prove that we don’t overspend)
- written permission that they can request our data from the central (government operated) loan database
That’s it. From these they could tell that we are safe to loan money to because we’ll most likely be able to pay it back.
I don’t see how a credit score system is essential when you can provide them with the necessary data only when it’s needed.
You can “game the system” by picking credit cards that offer some kind of cash back incentive, and don’t carry balances month to month. For example the chase freedom card does 1% on all purchases and 5% on specific categories that change every quarter. I’ve had this card for like 9 years, I’ve never paid any interest because I pay it off monthly , and we make lots of “free” cash back. The key here is don’t go get a credit card and buy stuff you can’t afford, that should be hammered into youth from the beginning, just buy what you can afford, and if you’re disciplined enough you can put all of your purchases on the card and benefit from the card incentives for basically free.
I can’t agree with this more.
Transferring points earned to airlines can also net you some incredible deals on flights as well. I’ve booked several tens of thousands of dollars on business/first class travel over the years at a fraction of the cost. With the addition of free hotel upgrades and car rental upgrades, you can use credit cards to your advantage.
The caveat is that it takes some amount of expendable income to play.
