I know this is a thing in the US, but in Norway where I am from it doesn’t matter. Nobody gets a credit card here improve credit rating. I doubt people do they in most of Europe.
When somebody does a credit check on you they don’t get a score, only a remark on whether that person has done any negative with respect to their credit worthiness. Thus there is really only the negatives which count.
Credit reference agencies instead report credit history.
The difference is a subtle but very important one, as it allows companies to assess your individual circumstances, rather than base decisions on an arbitrary score.
The above misunderstanding is so commonplace that the Redit UKPersoanlFinace sub had (has?) a bot explaining this on every UK post mentioning 'credit score'. Here "credit scores" are instead a marketing gimmick launched by credit reference agencies to get consumers to subscribe to monitoring services. The 'score' they give is meaningless.
That's odd, I got a mortgage approved at 19yrs old, in the UK, with no credit usage/history whatsoever. I had a credit card but I'd held it for about 3 months at the time, and have never used it to this day.
Only since then have I actually had anything on my credit report (monthly broadband payment, phone contract, monthly car insurance payment because I didn't want to keep paying the whole 3k up front every year after moving out, etc) and despite that the score has remained unchanged.
It isn't that a lack of credit card hurts your credit rating, but that a lack of any credit hurts your credit rating in Canada or the US.
There are other ways to get an initial credit rating than a credit card, although I agree that this is the path most easy, and chosen by many to get that first rating.
The method I employed, was to buy a car and had a parent cosign. I made all the payments, and this was enough to kick start, and give me at good credit rating.
Ah but, for most people it's easier to get a low-limit credit card in the UK, than it is to get any other unsecured loan.
I also didn't say 'you need a credit card to get a good credit score', I said not having one will negatively impact your score. This is 100% correct; Your credit score is made up of various metrics on how you manage debt, one of which is credit cards. You will get a % boost if you have a card that you manage well, whereas without a credit card, you will get no boost at all in that category. Granted, you may make up for it overall in other categories, but in the main, for most people, my statement still stands. Credit scores start at 0, and only improve if you show you can manage debt across multiple products.
Hmm. I think the issue here is, we are all in different regions. Not only does the country matter (Canada here), bit the region too (Quebec, Napoleonic civil code, and provincial laws).
Credit bureaus are definitely legislatively controlled here, and court decisions have an effect on them too.
You can use direct debits instead of loans and are available for a really wide variety of payments, so is easier and safer than getting a credit card for many people.
Not only this, but getting a credit card and not using it can cause an issue for your credit, so it's better to setup direct debits and other forms of credit than it is to get a card you never use.
The issue isn't not having a credit card, it's never having used any credit to create a good credit history. Setting up a few direct debits should work in lieu of getting a credit card.
The way this works in the US is nuts. I had to get a parent to co-sign the loan for my first car (or else they wouldn't lend me money at any rate), but then I spent a year paying a monthly fee to borrow my own money with a "secured credit card" and instantly I'm good for 40 grand, apparently.
That's not how it works in the US currently. You go through that process to get your first credit card, yes, but you do not get approved for $40k. My first card was $500. My best one now (with excellent credit score) is $5k IIRC.
If you got approved for $40k, there's something else funny going on.
Isn't it completely rational from the lender standpoint? First they make sure you will be profitable for them (involve other people who can be milked), then they offer you money and hope you can't pay back on time.
Maybe you displayed the ability to not go into debt unnecessarily, which could be also a signal of financial ability.
Getting into debt just to demonstrate you can pay it off is a bit like having to catch a virus so that the doctor can tell you you're healthy once you're done with it.
But it's true that in the era of negative interest rates, only silly people don't owe money.
I guess using the analogy — your doctor won't tell you "you've a great immune system" if you've never caught a bug at all. Maybe you've a really weak immune system, they just don't know.
Not going into debt unnecessarily is a great thing, but it's not a data point in your favour, it's the absence of a data point.
A credit rating basically isn't considered for a mortgage in the UK. They will check a report, and maybe request you pay outstanding debts (I was asked to clear my CC balance before completion both times), but unless you have a fraud marker or are bankrupt it won't affect you. Mortgages are secured on the asset, so it's far less risky than a personal loan of 5x less - the bank can seize the asset and force the sale of the home (and that difference in risk is reflected in the difference in borrowing rates).
My experience is they do indeed dig into your credit report and will approve/deny based on it. Not sure where your information to the contrary comes from?
Most UK CC T&Cs state explicitly "If you have a home, we will go after it if you default." Personal loans have similar recourse.
Neither are truly unsecured. It just takes longer than an outright repossession because it takes two or three court claims instead of just one.
The debt collection industry relies on this, and regularly forces sales of property to pay back CC and other debts.
So CCs are disastrous for people who can't pay their debts. Not only are the interest rates extortionate, but for lenders they're almost as safe as a secured loan. And because of the high rates they can be considerably more profitable.
I've not seen a credit card where you can't automatically pay the full balance by direct debit each month. You do still have to do some maths (actual balance = current account balance - card balance) but I don't worry about it not being paid off.
Which demonstrates that you in fact are bad with money, so the system is working as intended. If you don't trust yourself with day-to-day spending, why should a lender trust you with a loan representing months or years of income?
Keeping an eye on your spending is great, but you can equally do that with credit; it's easy to look at or download transactions in your credit card app or website. Unless of course you don't trust yourself not to overspend, in which case my point stands.
You are aware that interest rates have been incredibly low for years? They have to go up to keep a lid on inflation, and the BoE needs to be able to do that without worrying about mortgage borrowers being overstretched.
It's more correct to say that never having any credit facility negatively impacts your credit rating. I have a credit card now, but several years ago I didn't, and I had a perfect credit rating, by dint of the multitude of other credit agreements that I had for the general running of my life, like mortgage, telephone, internet, etc.
When somebody does a credit check on you they don’t get a score, only a remark on whether that person has done any negative with respect to their credit worthiness. Thus there is really only the negatives which count.