Why The American Credit System Is So Terrible

In America, more than in any other country in the world, three numbers can change just about everything. From your job, to your home, to your insurance, three digits can command where you can live, what you can buy, and what it’ll cost you. To most Americans today, this is just “the way it is,” but that idea, and the idea behind credit scores in general, is deeply complicated, discriminatory, and rooted in a long history of our financial system driving an ever bigger wedge between the rich and the poor.

In this episode, we’re looking at credit scores. We’re going over everything wrong with our modern credit reporting system, how you might hear people defending this broken metric, and the why and the how that landed us here.

Why The American Credit System Is So Terrible – Second Thought

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Citations And Further Reading:
Credit Scores, Neoliberalism, and Class Systems

Credit Racism

Redlining and Market Logic

A Third of Americans Have Errors on Their Credit Report

52% Credit Medical Debt Stat

Paying Off Loans Early Hurts Your Credit Score

August 2001 Excerpt from “The Banker”

Short Description of Credit Unions

China Social Credit System

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About Second Thought:
Second Thought is a channel devoted to education and analysis of current events from a Leftist perspective. Welcome!

[Smonserratm]

Credit be like "You need money? Well, prove to me that you don't need it."

[CleanRT]

Banks be like: "Your credit score is too low to obtain a mortgage paying $900/mo. for a house."

Meanwhile: You've been paying $1300/mo. for rent for years.

[crustjunkie]

I tried to follow the conservative talking point "Just pull yourself up by your bootstraps, " "Become your own boss", and start my own business but was denied a loan because I had numerous surgeries due to a life threatening illness that lowered my credit score to 500.

Now I'm physically disabled, can't work, and all I got out of it were more medical bills, lower credit, and infinite debt.

[BennyBattaglia]

My wife and I were super financially responsible. We never got into debt besides my student loans. When we went to buy a house I had a credit score from my student loans. My wife paid for college out of pocket and has had zero debt. The mortgage loaner had a problem with that because even though we paid everything on time for the past 3 years, she needed to get a credit card so she could have a credit score. 🙄

[agreedboarart]

I love how people claim that lenders don't count medical debt. YES, THEY DO. One medical bill will destroy your credit and any lender, dealer, etc. will use that against you.

[SennaHawx]

I always wanted to know what US-Americans mean when they say "credit score", so this is going to be good

[CharlotteThroughTheWeb]

I have definitely lived this. I have had several disabilities since childhood. When I was a young adult, I had an employer that made me come in when I tried to call in sick because my chronic illness was acting up. I fainted and called an ambulance, telling me I would be fired if I didn't take it.

A few weeks later, I got a huge bill and their HR denied the worker's comp claiming I knew I wasn't feeling well and shouldn't have come in. That one bill dropped my credit score to 300. For years I couldn't get a job besides through social connection, couldn't find an apartment and had to rent rooms from friends with only inconsistent money to pay them back. I couldn't buy a new phone even unless I paid full cash in hand.

Years later I married an individually wealthy woman. She did nothing but give me a credit card to buy her groceries and put my name on the house (not even the loan) when we moved. We didn't even pay that bill. My credit score went up to over 700.

The whole system is a massive scam and I hate how much it is treated as objective when all it does is further poverty.

[HoiPolloiNtertains]

A system where paying off debt hurts you. That’s all you need to know to see how broken this system is.

[ThePhosee]

You can not even understand how ridiculous this system is to someone from outside US. I came to US from Ukraine, where we generally try not to take loans. And here in US they tell me that I must have this credit cart, where I deposit my OWN money, that now considered not mine anymore, and only then I can use them, but also need to repay them constantly. And then this Credit Score comes along, and it seems to live its own life no matter what I do. Utilization is slightly higher: score is down . Paying everything in full: score is down. And then these reporting agencies that sell your personal information to other institutions, resulting in tons of commercial proposal spam. This whole thing is perversion and sickness.

[Dachusblot]

The thing that pisses me off about credit scores, besides how dystopian they are, is that _nobody taught me about them when I was younger._ As a kid/teenager, I was under the very rational impression that after I went to college, all I needed to do was get a job, pay my bills on time, avoid going into debt as much as possible, and I'd be fine. Then you get thrown into the deep end of adulthood and suddenly realize, oh wait, I can't get a car or an apartment because some mysterious number I know nothing about says I'm not trustworthy? So then you try to learn the rules and be responsible to build up your score, but it turns out that any random thing can fuck up that number, and then it's too bad for you. Oh, you paid off your loans too early? Fucked. Oh, the bank made a mistake and didn't send one of your payments through on time? Fucked. Oh, you don't have _enough_ credit cards? Fucked. You can pay your rent on time every month for years, but one medical emergency and you're totally fucked. It's easy to call it Orwellian, but I'd say it's more Kafkaesque.

[mokaPCP]

As always, as a european, this is fucking insane to me lol

[Johnsmith]

Americans: China’s social credit system is evil! We’d never tolerate such a system of oppression and social control.

Also Americans: Crap, I paid off my student loans too quickly…

[carissahowell]

Little known fact that lenders will pull your score first. If your score isn't a certain number (usually 600 or 650), they will not pull an actual credit report, which means that they will not see whether or not you have previous lines of credit that you paid as agreed. I had 2 credit cards that I paid off and closed. Once they dropped off of my credit report, my score went down. I paid off my score went down. Now I am at a point where I will struggle to get new lines of credit, because of my lower score, not because I am an untrustworthy borrower.

[trinodot]

I went to the emergency room a few months back and now I have to either pay a bill of $4500 (which essentially amounts to all of my savings) or see my credit score, which I have worked my ass off to build to 780, drop hundreds of points. I am being forced to pay this ridiculous bill or destroy my chances of ever being able to finance (or probably even rent) a house in the next several years. All because of one bad day. Anyone who says this is a fair and just system is a sociopath.

[MrShaclakclak]

I need to vent. I recently went out to get a loan form the bank, to help get me a new place to live (closer to work) I was denied because I have a "collection" against my name. A collection that comes from a time when I broke my shoulder and went to the hospital which then sent me to a specialist for physical rehab. I was insured, but my insurance didn't cover a "specialist". I was unaware of this. And never told at the office before the doctor saw me. And because of that I owe the doctor 1600 for one visit which I gained nothing from. FIVE years later I can't get a loan because my credit score (an arbitrary number that means nothing) says i can't pay bills. So no help to me. And my credit score will be affected for 7 years unless I pay the doctor off. I will not give my hard earned money to this doctor. (Thats 3 months rent for me). Yes I guess shame on me for not knowing everyone who accepted my insurance. Shame on the office, I was there for a total of 15 minutes and was told to wear a Sling, which I already had. "Predatory" seems like too nice a word for this.

[lucaswickmansound]

I’ve asked my parents why I need good credit and they always say “in case you want to buy a house or a car” like I could afford either of those in this economy lmao

[rilke]

When will the working class learn that we can’t wait for our rights to be given to us, we must take them for ourselves!

[rn]

The part of the credit system that makes the least sense is that if you live within your means and don't go into debt you will probably have a horrible credit score.

[gtaeverrr]

It really doesn't make sense why doing things like paying your rent on time don't improve your credit score, especially considering the fact that you need decent credit to rent an apartment in the first place.

[DaveWraptastic]

there's such an easy fix: stop asking for people their credit score. Why does everyone ask for it, especially when you know that they are riddled with errors? How hard is it for a bank to ask for your income and expenses and calculate what you can responsibly lend? That's what every bank in my country does...It doesn't take that long to make a case-by-case calculation to know if someone can afford a 500k loan...