Credit Systems in Other Countries

Credit Around the World

Credit Around the WorldYou’re likely already familiar with how your credit score is factored and what debt management tactics you can deploy to repair credit here in the United States. But it’s worth examining credit elsewhere around the world, including how credit scores are calculated, what countries have advanced credit reporting systems as well as some of the consequences one might face abroad when a bill goes to collections.

FICO (or Something Like it)

The FICO concept isn’t just exclusive to the United States. In fact, it’s estimated that up to 20 countries use either the FICO score, or some variation of the FICO score as we know it, to judge whether or not a customer would make a worthy borrower. Using the FICO method is one of the most reliable ways to judge a good borrower, and formulas similar are used in countries such as the U.K., Thailand and Germany (where the credit reporting agency is known as SCHUFA).

Accentuating the Negative

Abroad, credit scores are calculated based on both the good and the bad when it comes to lending history. But if you live in Australia, Hong Kong or Sweden, only your negative credit history is included in your report. However, this is a bit of an unreliable credit system, because a lender is unable to accurately judge whether or not someone would make a good borrower based on the fact that they are unable to see any positive history. Questionable credit reporting methods are particularly highlighted by Sweden, which has no three digit score, just either “good” or “bad” as values.

Consumer Friendly Scoring

In the U.S. it’s usually a good idea to check your credit score and pull your credit history from time to time. After all, it’s truly the only way to institute any credit repair strategies over bad debts or poor past finance habits. But elsewhere in the world, credit reporting is made quite consumer friendly. Take Austria, for instance, where residents must opt-in before any of their personal info can be used for any purpose. In Canada, as long as it’s in writing, you can get as many free credit reports as you desire. And in Norway, every time your credit is checked, you’ll receive an e-mail that details who it was requested by and why.

Discrimination Scoring

If you really want to get an example of a poor – and racist – credit scoring system, look no further than the system that South Africa used in the 90s. It actually considered things like race – and gave black consumers a lower score than other races. That consideration has since stopped, however.

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credit cards europe

Credit and Finance Around the World – 10 Things You May Not Know

  1. If you go to Europe, your favorite credit card may not work. In Norway, you need to enter a PIN for all credit card transactions. In other parts of Europe, cards are now implanted with EMV chips for security.
  2. Throughout the continent of Africa, merchants and ATM owners are held financially responsible for fraud. (In the US, the card issuer is the one that’s left, legally, holding the bag.) As a result, 77% of credit card systems on that continent require the extra security of EMV chips.
  3. In Kenya and Tansania, most minor financing transactions don’t go through a bank. They are handled with a mobile system called M-Pesa that is run by the countries’ two largest mobile phone carriers.
  4. Chances are that Americans lag people from other countries in financial literacy. The Organization for Economic Cooperation and Development has begun testing 15-year-olds to find out how much, on average, kids from each country know. The results of the financial literacy test won’t be out till later this year; however, US scores are currently below average in math, which tends to correlate with scores in financial literacy.
  5. In Scotland, Northern Ireland and Wales, math teachers are required to have units on financial literacy in their classes. England and Australia will be adding this requirement to their curriculum as well starting with the 2014 school year.
  6. A new US company, COIN, is recruiting customers for the launch of a digital credit card wallet. The new system will be a substitute for the eight or more cards most Americans carry every day.
  7. In Canada and Australia, the average consumer charges over $7,000 on credit cards every year. That’s almost double the average American’s charges of around $4,000. Canada has over 72 million credit cards in circulation, compared to 686 million in the US.
  8. Countries where people use credit cards less tend to have higher savings rates. In Germany and France, the average consumer charges just a few hundred dollars a year. The average savings rate in both countries is over 10% of income per year.
  9. About half of all Americans carry a balance on their credit cards. By contrast, over three-quarters of South Koreans pay off their balance in full every month.
  10. In many countries where credit card usage is low, even large transactions are handled in cash. For instance, expenses associated with a wedding in Turkey or Bahrain would be paid in cash, despite being thousands of dollars.