Is There Such a Thing As Global Credit Scores?
Working as a lender previously, I am always interested in what is going on in this ever changing convoluted industry, especially since it ties in so heavily with the real estate industry.
Apartments in New York, Manhattan gets a ton of foreign investors, renters and foreign job relocations. It is virtually impossible for foreigners with no US credit history to obtain financing for a purchase or even get approved for a rental, unless the purchase is an all cash deal or the renter would have to shore up a full year’s rent or 6 months security, and the latter not even being foolproof for approval.
It has always behooved me to think that we live and breath in a global community, and why is there no global credit score module or a single accredited entity one could defer to? A centralized one like what is being proposed here would be ideal. This scenario is great on paper, but I can foresee major issues, some of which are outlined in this article.
Global Credit Scores: Around the World in Three Digits
“Du bist auf die schwarze Liste gesetzt worden.”
That’s what you might hear if you don’t pay your credit card bills in Austria. Translated from German, it means, “You’ve been blacklisted.”
American consumers aren’t the only ones working hard to get that coveted “excellent” credit score. At least 19 other countries use some sort of credit scoring system for companies to assess whether or not to extend credit to citizens.
While most factors for determining creditworthiness—such as payment history and utilization rate—are similar across the globe, there are also some interesting differences between countries’ methods. Check them out below:
Accentuate the Negative
Several countries collect only negative data on consumers, such as defaults. This is true in Australia and used to be true in Hong Kong as well. This makes lending decisions difficult and biased. If a lender can only see negative factors, but not the positive, it’s hard to determine a consumer’s level of risk.
In Sweden, consumers who don’t pay their debts receive a “non-payment record” on their credit. This record remains on their report for three years for individuals or five years for businesses.
Some global communities have regulations in place that benefit consumers. For instance, Austrian citizens must opt-in to let their personal data be used for any purpose. Once opted-in, a consumer can decide to revoke the opt-in status at any time.
When a Norwegian lender requests an individual’s credit score, the consumer will receive an email from the agency that provided the score. The email will state who requested the credit score as well as what information was included in the score.
Here in the U.S., free credit reports are generally limited to once a year. But Canadian citizens can request as many free credit reports as they want each year. The only catch is that the request must be made in writing.
While some U.S. regulations are making it difficult for stay-at-home moms to gain access to credit on their own, it’s different in the United Kingdom. When a citizen applies for credit in the U.K., her spouse or partner’s data can be used to help make the lending decision as long as the two individuals have an established financial association on record with the credit bureaus. In other words, a stay-at-home mom won’t have to get her husband to co-sign for her new credit card.
Discriminatory Credit Scoring
Although the U.K. has regulations that may be a boon for stay-at-home moms in need of credit, it’s also penalizing young people living with their parents. Individuals over the age of 25 who still reside at their folks’ home could see their living situation negatively impacting their credit rating.
But this discriminatory credit scoring seems tame compared to South African methods. Until the mid-90’s, race was being used as a credit-scoring factor. Black Africans were considered more of a credit risk. However, Raymond Anderson, author of “The Credit Scoring Toolkit,” claims that scoring was done in this way not because black citizens were less likely to pay back their debts, but because the repayment infrastructure was less reliable in regions with primarily black populations. Regardless of the reasons for using race as a scoring factor, it’s a good thing this unethical practice has ceased.
Will There Ever Be a Global Credit Score?
Not likely. Just like the difficulty of establishing a global language—ever heard of Esperanto?—creating and regulating a global credit scoring model would be troublesome at the very least. Different cultures value data in different ways, so they would have to come to an agreement on how scores are developed.
Besides, the United States doesn’t even have a unified credit scoring model. U.S. scoring models depend on which credit bureau is creating the score, which credit provider is requesting the score, and a variety of other factors. Until credit scoring is more universal, U.S. residents should remain focused on just one score model, such as the credit score provided by Credit Karma. Working on your overall credit habits, instead of worrying about multiple scores, will keep you on track to achieving healthy credit.
Soho Lofts- Tribeca Condos – WestVillage Apartments – Upper East Side NYC Apartments-Upper West Side Apartments – Battery Park City Apartments -Chelsea Apartments- Gramercy Apts – Midtown East NYC – Midtown West NYC – Murray Hill in NYC – Lower East Side NYC- East Village Apartments