[tacLog]

As someone from a Western country, what replaces it?

How do you buy a car on a loan for example?

It's not perfect but unlike both your examples it isn't based on things that could be consider political. You can't lower your credit score by attending a protest for example. Or posting things for or against causes on the internet.

I am just honestly wondering what else is our there? It has always seemed like a tool that can be used by both individuals and lenders.

[PeterisP]

At my home the approach is a central registry of defaults that can be accessed with your permission (which is required by some but not all lenders to evaluate you). It's kind of an extreme version of a credit score, where everyone who has never defaulted - or where the cause of default wasn't their fault e.g. identity fraud - has a perfect "credit score".

The key values used by banks is essentially two ratios, loan vs collateral, and monthly loan payments vs monthly income; so the question isn't about whether to grant a loan but what is the maximum amount they are willing to risk given your income.

[addaon]

Doesn't this system also require a central registry of outstanding debt per individual? Otherwise if the bank ratio calculations say they're comfortable lending you $1000, what prevents you from going to 100 banks and getting 100x that amount (which, presumedly, would be beyond each individual bank's risk tolerance)?

[chii]

This is exactly what happened with https://en.wikipedia.org/wiki/Archegos_Capital_Management#Ma... - they had what basically amounts to loans to several different banks (with each bank largely unaware of his other leveraged holdings at other banks).

When the stock price dropped and started to make margin calls on the loans, some of the banks had to take a loss as there wasn't enough liquidity to sell into.

banks don't like to be in this sort of situation - in this particular case, the banks just didn't do enough due diligence presumably.

[maxk42]

That's exactly what a credit score is - only the defaults disappear after a certain number of years to give people another chance.

[PeterisP]

As far as I understand, people in USA with zero credit history get a poor credit score, which is a major difference from zero history being as good as it gets.

[astura]

If you have nothing on your credit report you don't have a poor credit score, you have no credit score.

[hocuspocus]

Plenty of European countries don't have credit scores.

A car loan is collateralized so I don't really see what's complicated.

[MaxHoppersGhost]

The cost of repossessing a car isn’t zero, and even finding the car can be hard. What if the car is trashed when you repossess it? Say they wrecked it and don’t have insurance? This isn’t an uncommon scenario.

[hocuspocus]

No insurance = no registration = no plates.

That's a pretty serious offense and it's extremely uncommon over here.

Sure, repossession can be costly but debt collection agencies will make your life hell very quickly, it's not something you can drag for years without big consequences.