They're basically a black box and can do some really weird shit (I had mine drop by 80 points, which is a lot, all because I paid off my student loans), but their purpose and basic workings are pretty straightforward. You show that you can be trusted when you're given a loan and can pay it back? Score go up. Do things that make the bank question if you can pay them back? Score go down.

Now, there's a shitton of complexity to it I won't go into, but it's not always as bad as people make it out to be and really only matters when you're trying to get a loan and sometimes when you're renting somewhere.

[–] hulemy@ani.social 4 points 1 year ago (1 children)

That I understand, but adding your kids on your credit card so their score goes up and things like having debt just to pay it back is weird to me

[–] Trainguyrom@reddthat.com 1 points 1 year ago

So co-signing (the having your kids on your card you mentioned) is just sharing the responsibility. Basically everyone signed on the line of credit (loan, credit card, etc) is considered equally responsible and expected to contribute financially to pay for the line of credit. Most commonly it's a husband and wife buying a house, you both contribute financially towards the loan and you both reap the benefits of the loan, and you're both in trouble if the loan isn't paid, and it affects both of your scores depending on how well you manage that line of credit.

There's different kinds of lines of credit you can get, from really bad ones like personal loans and credit cards (both are very high interest and not recommended) to moderately decent ones like car loans (interest rate is okay, but the item you're buying loses value) to good ones like a mortgage for a house or a Home Equity Line of Credit (HELoCs are weird, but it's using the equity on your house for what spends like a credit card but is paid back like a mortgage)

[–] dingus@lemmy.world 2 points 1 year ago (2 children)

Fair enough. I have a question though so apologies for my ignorance.

But how do lenders in your area determine if someone is a good borrower or an unreliable borrower without something like a credit score. I'm not saying the way the US does it is the best answer or anything. I just legitimately don't know how it works elsewhere.

[–] hulemy@ani.social 3 points 1 year ago

Pretty sure we have some sort of database or Registry for people who don't pay back their loans. And loans do show up when for example mortgage people do a background check on you

[–] Aux@lemmy.world 3 points 1 year ago

In most European countries you're innocent unless proven guilty. That means that instead of a credit score, which is 0 by default and you have to prove to everyone that you're a good boy, we can take any loans straight away. But if a person defaults, then they get a mark in their financial profile and other lenders will be wary.