Ask anybody who immigrated to the US, it's a royal pain. (Especially since you have global brands - like e.g. Mastercard - incapable of referencing their data from outside the US).
You start with a secured credit card for $200. Next, you buy a clunker of a car for all-cash. At that point, you have enough history to get a CC with $500-$1,000 limit. Now you pay everything through that CC. And make damn sure you're always 100% on time - a single slip costs you a lot of time setting up that history. After a year or two of that, you usually get a CC covering one or two months of income. Keep building.
You can also go with capital one which has an unsecured $500 credit limit immigrant credit card. Citibank also had a program for new immigrant credit cards. The citibank one references your current income, I got a card with a $10k limit.
In the USA, what builds credit scores is showing a pattern of using revolving credit and servicing the debt over a period of time. You are penalized if you use too much of your available credit. You are also penalized if you use too little of it, as I found out when I paid off the balance of the one remaining card that held a balance, and saw my credit score hit by about 15 points shortly thereafter. There are other rules, too.
Basically, I can only conclude that we are encouraged to be 'good citizens" by borrowing money and paying interest on it while slowly paying back the principal. People who live on a cash-only basis, which was considered to be a respectable practice not that long ago (borrowing was shameful) have terrible credit scores.
So what, you may ask?
There are very real and increasing disincentives to having bad or no credit. Creditworthiness (in the form of a nice, easy to understand number) is being taken more and more by various entities as a sign of responsibility and even good character.
A credit score is now used by some entities, beyond the mainstay car dealers, to judge risk and character: apartment rentals and employers, to name two.
I'm not suggesting that all employers and apartment management companies do this, only that the trend (I have no citations but it should be searchable) is on the increase.
The bottom line is that in the USA today, credit scores depend on how - and how much - you borrow and repay.
Furthermore, the higher your credit score, the better you are treated, to a degree: better rates on loans, no problems getting a job (all other things being equal), and so on. The opposite is true for bad scores.
This is one of the many ways we are corraled into greasing the gears of the economy, and it is a wasteland for cash-only operators (unless, I suppose, they have a huge amount of cash).
>>Basically, I can only conclude that we are encouraged to be 'good citizens" by borrowing money and paying interest on it while slowly paying back the principal. People who live on a cash-only basis, which was considered to be a respectable practice not that long ago (borrowing was shameful) have terrible credit scores.
Welcome to the new consumerism.... Being Thrifty, having savings, and generally being responsible with your income is bad. The Government does not like it and punishes you with low/no interest on savings and inflation that outpaces that savings, Banks hate it because they would rather you spend spend spend so you need their loans to live above your means so they can not only get interest but maybe you will also over draft on your checking and they can kill you in fees.
Retail shops hate it because they need to sell you increasing amounts of cheaply made poor quality product you must replace every 12-18 months
The economy lives and dies with debt. If everyone started saving and living with in their means tomorrow the national economy would come to a screeching halt and we would have a depression that would make 1929 looks like a boom year
You don’t really need a history. I.e. it’s very possible to get around just fine without credit card or loans. Most people I know in continental Europe just have debit cards and only buy things they have enough cash in their bank account to afford.
The only exception is mortgage which is usually the only loan people take their entire life. And it’s possible to get it without having a credit score. You’ll need your complete history of employment and addresses and based on that bank can borrow you money. Perhaps car leasing is another loan people might take but that works similar way.
Borrowing money to buy everything seems to be an American fetish (but also present in U.K. which is most America like part of Europe and Asia, not continental Europe though). It always seemed insane to me to have to borrow money from bank to buy a latte or groceries.
Having my consumption expenses separate from my actual bank account is quite nice - it means my bank account statement gives me a quick summary of what I spent this month (x went to my mortgage, y went on utility bills, z went on buying things) and then my credit card statement has the details. You could see it as borrowing money for your latte but you can also see it as being billed at the end of the month for your lattes which is normal for many things. In principle I'm all about living within your means, but really why wouldn't I do things this way and get a month's grace on paying for everything and free plane tickets every so often?
I get the same thing with prepaid debit card. I use Monzo which sends me push notification every time I buy something and I can see my weekly / monthly / annual spending habits per category (utilities, groceries, entertainment, eating out etc). The credit card is absolutely not needed for this and most modern banks give you very detailed summaries like this via their web / mobile interfaces.
I've got a direct debit set up to my bank account, so there's no risk of accidentally not paying (of course it's possible to overdraw my bank account, but that would be possible when paying by debit card as well).
Yes I had similar setup when I had credit card in the past (when I worked in Hong Kong I had to open bank account with HSBC and my account came with Visa credit card, the debit card they issued was not Visa or MasterCard so did not work in many stores so I used credit card mostly).
It was annoying as even though I setup automated direct debit I simply didn't have peace of mind. I don't trust HSBC systems to be bug free and a bug in their software which would not process by direct debit is something I'd keep worrying about. Much better not to have this additional subconscious stress.
But if you are in UK or Germany or country like that there is no need for credit card really. Debit cards are ubiquitous and work everywhere (UK banks will give you a proper Visa/MC debit card, not some Mickey Mouse debit card which only works in ATMs).
The same way you do now, as a new adult: apply for a very low-limit credit card, get an older relative to co-sign a loan for you, etc. Over time you build history that shows you are (or are not) trustworthy to lend to.
This is not a new problem. The solution is the same as it is today, you must build a history with small limit revolving lines, cosigners and guarantors.
