The claim: The United States is the only country with a credit score system
A social media post that garnered tens of thousands of shares since late July claims that the United States is the only country to use a credit score system.
"I knew this country was jokes when I found out we were the only ones with credit scores," the post, initially shared on Twitter, reads.
In the United States, credit scores track a person's financial information, including their debt and bill payment history. A person's credit score can impact someone's ability to get a loan or rent an apartment. Sometimes, credit checks are a required part of ajob application. Credit scores can also impact the terms of loans, the cost of insurance, and how much money is required fora depositon an apartment or utilities services, among other things.
Though other countries'credit systems may not be identical to that of the U.S., manydo have systems in place that track and sometimes quantify a person's credit with a "score."
A widely-shared screenshot of the initial post also includes a comment claiming that "everywhere else you just give (property owners) the money and live in the house/apartment."
This, too, is only somewhat true. Somecountries use their own version of a credit score to determine a person's likelihood to meet financial obligationswhen they apply for an apartment or home. Others rely instead on other measures, including proof of income, length of employment, or a history of negative marks, like missing bill payments.
The individual who shared the viral postdid not respond to a request for comment.
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Credit in the United States
The credit score system in the United States takes into account both positive and negative marks on individuals' financial history.
The idea of credit is not an American invention — its history stretches back at least 5,000 years to early agricultural loans, with the first formal laws about credit set in the Code of Hammurabi in 1800 BC, according to Business Insider and Equifax.
The Fair Credit Reporting Act passed in the U.S. in1970, requiring credit reporting companies to make credit reports and scores available to consumers (only under specific circ*mstances) and allow them to dispute information on those reports, among other things.
Today, credit agencies calculate an individual's credit score using a version of the FICO algorithm, developed in 1989 by Fair, Isaac and Company to serve as a standardized measure, according to FICO's website. About 90% of lenders in the U.S. use FICO scores to assess credit.
A FICO score takes several components into account, including:
- Payment history
- Amount owed
- Length of credit history
- How many times someone has applied for new credit
- Mix of credit types, including loans, credit cards, mortgages and more
Experian, Equifax and TransUnion, the top three national credit agencies that report credit scores in the United States, use FICO scores to calculate a person's credit score, which typically falls between 300 and 850. Because the scores are calculated using scoring systems unique to each company, it is possible for a person to have multiple credit scores, according to a United States government guide to credit.
Higher scores generally mean more favorable interest rates for loans and credit cards and lower insurance rates.
The general relationship between wealth, credit and inequality has been discussed in the U.S. for decades, broughtagain to national attention as the coronavirus pandemic crippled the economy and protests against racial inequality swept the nation. In August, Democrats introduced legislation in Congress that would require the Federal Reserve to "minimize and eliminate racial disparities in employment, wages, wealth, and access to affordable credit," according to reporting by The Washington Post.
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How systems in other countries compare
Canada's credit scoring system is fairly similar to the United States. Credit scores in Canada range from 300 (low) to 900 (the best possible score) and are calculated by the country's two major credit reporting companies, Equifax and TransUnion. These companies track only a person's financial history in Canada, according to a credit report and score guide from the Canadian government.
Credit scores take several components into account, many of which are similar to thoseused to calculate FICO scores in the U.S.:
- Payment history
- Number of delinquencies, bankruptcies and debt collections
- Credit balance and credit limit
- Number of recent credit applications
- Length of credit history (maintaining a credit account for a longer period of time can boost credit scores)
- Mix of credit types
- Number of credit accounts (too many may cause scores to lower)
Credit reports can be used by lenders, insurers, phone companies, landlords and employers, among others, to assess a person's financial risk. Like in the U.S., higher credit scores can make it easier to obtain loans with favorable interest rates, obtain rental housing, obtain insurance and get a job or a promotion.
Germany's major credit bureau, SCHUFA, tracks borrowing activity, defaults and information about financial history to generate a score, which can be used by lenders to determine eligibility for loans, apartment leases, phone contracts and more, according to the company's website. Lower scores typically mean less desirable interest rates on loans and more trouble obtaining credit, according to the Open Knowledge Foundation of Germany.
France does not have a major credit reporting company, according to a 2018Business Insider article, instead requiring documented proof of income, three months of bank records and a contract of sale for mortgage loans.
In other countries, like Spain and The Netherlands, credit bureaustrack negative marks, like unpaid debts, that can land people on a "black list" for bad credit, which can last for several years or until the debts in question are paid, Business Insider reported.
China tracks individuals' credit using data from financial records, criminal history, government records, and more. A controversial "social credit" system is expected to fully launch by the end of 2020, according to an August 2020 article in the South China Morning Post.
Under this system, bad credit ratings can result in being placed on a credit blacklist and punishments, including a wide range of restrictions on plane and train travel, the ability to obtain loans, and eligibility for subsidies and tax rebates for companies, among others. Good credit could be rewarded with incentives like waived deposits for public housing, the South China Morning Post reported.
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Our ruling: False
The claim that the United States is the only country that has a credit score systemis FALSE.
Though credit systems vary from country to country, several countries have their own versions of a credit scoring system used for similar purposes asin the U.S. Some countries that do not have credit score systems instead require documented proof of income, bank statements and other supporting documents to apply for credit.
Our fact-check sources:
- usa.gov, Credit Reports and Scores
- myFICO, Aug. 21, 2018,The History of the FICO Score
- Federal Trade Commission, Fair Credit Reporting Act
- Business Insider, Aug. 30, 2017, Infographic: The 5,000-year history of consumer credit
- The Washington Post, Aug. 5, 2020,Democrats introduce bill to give the Federal Reserve a new mission: Ending racial inequality
- Finder.com, April 27, 2020,How do credit scores work in different countries?
- Business Insider, Aug. 20, 2018,Many countries don't use credit scores like the U.S. -- Here's how they determine your worth
- Open Knowledge Foundation of Germany, Feb. 22, 2018,We crack the Schufa, the German credit scoring
- SCHUFA, Scoring
- Government of Canada, Credit report and score basics
- French-Property.com, Applying for a French mortgage
- South China Morning Post, Aug. 9, 2020,What is China's social credit system and why is it controversial?
Reach Cassandra Stephenson at ckstephenson@tennessean.com or at (731) 694-7261. Follow Cassandra on Twitter at @CStephenson731.
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