damnedfurry comments on AMERICAN FREEDOM!!! 🇺🇸🇺🇸🦅🦅🦅🦅

[–] damnedfurry@lemmy.world 3 points 1 year ago (5 children)

The minutia of the algorithm is private, to prevent gaming it, but the major factors are very well known, and make perfect sense.

utilization percentage (if you're maxing out your credit line(s) all the time, that's a bad sign)
payment history (if you don't make payments by the due date consistently, that's obviously an indicator that you're risky to lend to)
age of account(s) (having made consistent payments for 6 months naturally isn't going to look as good as having done so for 5 years)

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[–] Evil_Shrubbery@lemm.ee 0 points 1 year ago* (4 children)

Also if you repay your loan early is somehow bad for your credit score.

If you change your bank to go to a cheaper one alters your score (creating sticky monopolies).

makes prefect sense

To scam citizens out of yields while minimising the chance of nonperforming loans?

The rest of the world puts citizens first.
The banks are the professionals with all the data & capital. They get to multiplicate money (give loans without backing) and get to charge relatively big interests on those loans (interes rates (spreads over risk-free) tnot indicative of/to cover the expenses of defaults, which are very rare overall, or their own operating costs).

The money multiplication thing comes from the state (central bank), and it exists to allow people to live & to perpetually stimulate the economy (eg getting a house earlier than saving up the lump sum to buy it whole). The banks job is to balance things out & offer competitive loans in terms of profits vs probability of defaults. Without that it's just free money for the banks. Like insurance business only selling policies to people/entities that won't ever need them.

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[–] damnedfurry@lemmy.world 0 points 1 year ago* (last edited 1 year ago) (3 children)

Also if you repay your loan early is somehow bad for your credit score.

The tradeline doesn't disappear from your credit report when you pay it off. It continues to benefit your average age of accounts for up to ten years (note that credit score estimates like Credit Karma do not work this way, and stop considering the loan the instant it's closed, which is not the way it works at the three credit bureaus—more info on the differences between Credit Karma's system and your actual credit score here).
It's trivial to have and maintain a good credit score with a revolving credit line (e.g. credit card) you're using and paying every month; installment loans are temporary by definition, and considering that loans with 0% interest essentially don't exist, they are not the way to go about building your credit score; they're what you use your good credit score to get as good a rate as possible.

With regular credit card use only, my credit score is well over 750 (and 750+ is top-tier from the perspective of basically 100% of lenders). And the last installment loan I had (car purchase over a decade ago), I coincidentally DID pay off early. Also, my average credit age, just checked, is 7y 9mo, less than the ten years mentioned above.

To scam citizens out of yields while minimising the chance of nonperforming loans?

Credit scores can only benefit good borrowers. Without them, everyone gets treated the same as people who have never borrowed, and lenders are obviously going to err on the side of caution (read: higher interest rates) when lending to someone who's a big question mark. But with credit scores, lenders can know who the ones who do make their payments regularly are, in other words, who it's least risky to lend to, which leads to lower interest rates.

In short, without credit scores, everyone gets shitty rates. With them, only shitty borrowers get shitty rates.

To reiterate, the bottom line is that you don't need to pay a single penny of interest to have a superb credit score. Just use a credit card and don't borrow more than you can pay off every month, same way you'd be limited if you were spending cash on the spot each time. That's literally all it takes.

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[–] Evil_Shrubbery@lemm.ee 0 points 1 year ago (2 children)

Ngl & sorry but that sounds indoctrinated af.

7~10 years on a car is predatory & shouldn't even be allowed. You overpaid half the car.

Difference between high & low(er) interest rates is access to credit & purchasing power. It determines what/where or even if you can buy a house. There are even USA pop culture reference to not having a good enough score so they don't get a loan.

And y'all interest rates are still high, regardless of the score.

Forced use credit cards takes away money from the stores & you get almost nothing in return (you should get money back, not some weird promise on loan rates that saves you money only bcs of ridiculous rates & long borrowing).
And repaying credit card (interest or not) has 0 relation to repaying a 10+ year mortgage. It's just bs to get the banks (and Visa/MC) obscene amounts of free revenue/profit & they don't have to do anything in return. Just think of how much money have "you" given the bank if 3% of all your purchases went to them. It's not that you directly lost that (tho through general inflation & stores overcharging you to cover what goes to the bank you have), but didn't get anything for selling/promoting their product either.

Different counties over the world use different systems, but most don't allow centralised private databases (tho some big ones still use it) that lenders can just access personal data on citizens (and all of them have problems).
Some countries have defaults or unpaid taxes accessible to lenders (via gov agencies/portals, not private firms).

Tho the best systems are just every lender for themselves & on data you provide them - statistics show how rare defaults are & how they don't really affect any lenders (except in a macroeconomic crisis, where eg the underlying real estate losses value).

And statistics also show that the prob of default are basically just related to wages (how much money is left to the borrower each month overall) & collateral.
That's is what central banks put restrictions on to govern monetary policy (besides overnight rates & gov debt ofc) & banking sector stability.

And in terms of eg mortgages - credit score is useless, you have real estate value that more than covers the lean & just about any borrower would have a lot more problems & to lose in event of default so they already try to avoid it as much as they can.

Credit scores don't lower bank insolvency rates, at most they help with the profit, but most importantly they arent really relevant to a lenders core business success.

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[–] damnedfurry@lemmy.world 0 points 1 year ago (1 child)

Reread what I wrote, I didn't have a protracted auto loan. I actually paid the car off a few months after I financed it, because I didn't want to pay any more interest (even at 0.9%) and I could afford it. I don't even remember what the original term was.

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[–] Evil_Shrubbery@lemm.ee 0 points 1 year ago

Sorry, that wasn't clear, the system is really alien to me.

But there are numerous reports from USA that paying of a loan early can hurt your credit score.
Which is def bad & counterintuitive.

The whole system is at best like a loyally card.

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