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astajaznan OP t1_ja8cevh wrote

Reply to comment by whomp1970 in Eli5 credit score please. by astajaznan

You really did get the job done! Thank You! I see now the logic behind the credit score way better.

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whomp1970 t1_ja8d9mn wrote

Thanks.

Try not to make guesses about how it works, though. Some of the decisions that go into your credit score might seem backwards.

I mean, some stuff, like "pay off all loans on time" is a no-brainer. But "how many credit cards I hold" and "how often I use my credit cards" doesn't always have an intuitive answer.

In other words, it's complicated.

If you want to know exactly what goes into your credit score, you have to do more digging.

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astajaznan OP t1_ja8ev9b wrote

Yes, we do not have that in my country, but I expect we will in future. We are 20-30 years behind America. I understand equation is not simple as "i use credit card = good". It's how it's used.

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whomp1970 t1_ja8fb3o wrote

That makes me curious: How do banks in your country decide whether or not to loan you money? What criteria goes into their decision?

There must be some kind of record of your past financial history, right?

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astajaznan OP t1_ja8hjz9 wrote

Yes. If you want a credit card, you must have an indefinite contract at work so that they can be sure that you have enough funds to pay it off. The amount of the allowed minus is usually 2-3 monthly salaries. As for the loan: also an indefinite contract. The amount depends on the salary, the monthly installment cannot exceed, I think, more than 1/3 of the salary. For some loans, you need a deposit or proof that you have the ability to repay such a large loan (usually proof of ownership of real estate or perhaps shares). And housing loans are most often taken out with a mortgage. You "give" the apartment you buy on credit as a cover for the loan you use to buy that apartment. When you pay off the loan, the apartment is 1/1 yours. That's how we bought an apartment... that is, we are in the process of buying it. We haven't paid all of it yet. People who are employed in government companies are the best candidates since it is very difficult to get fired there. So bank is sure you are going to be able to pay. Credit cards and shopping cards follow the principle of a permanent order (lietral translation). The bank collects its installment automatically every month until it's all paid out. You don't have an option where you don't pay, unless you don't have funds in the account, but usually payments are made from the current account - the one on which your salary is deposited.

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astajaznan OP t1_ja8htmj wrote

Also, I am not aware we have somethinhg similar to credit score company. Maybe our tax office does some mediation in this sense.

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bulksalty t1_ja8k9f6 wrote

How easy is it for an individual to file bankruptcy in your country? Does your country have liquidation bankruptcy (where debtors can get nothing if a borrower has no assets)? How hard is it to collect on a defaulted debt? How easy is it to set up and collect a wage garnishment?

Lenders want to know a lot more about how likely people are to pay them back with there are legal ways for them to not be repaid.

Since you mentioned the Balkans, I found a source indicating Croatia (to use as an example) didn't have any legal means of personal bankruptcy. In the US, almost 2% of the population went through a personal bankruptcy last year (many of those bankruptcies likely resulted in most of those borrower's debts uncollectable). Credit scores are going to be a lot less important if there's no legal way for a borrower to not pay their debts.

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astajaznan OP t1_ja8m8t0 wrote

I am not familiar with the way a person can file for bankrupcy but I found the article from Croatia that describes it. Same policy is, I believe, in all ex-Yu countres. You can translate it, sinc I'm not to "financial lliterate", to translate it in my own words. https://www.tportal.hr/biznis/clanak/zaglibili-ste-ovo-morate-znati-o-osobnom-bankrotu-20160812 I know that if company files for the bancrupcy, the founder of the company can not open new company on his/her name for next 5 years.

As I understand, when signing the contract with the bank for loan, both parties have to present evidence they have something to back up the loan. For bank that is not hard to present, and for person, in my case, is apartment we live in. The bigger the loan you ask for, the richer you have to be in order to support it. I don't know how it goes with a non-purpose loan. The bank will probably foreclose if you don't pay, or in the case of a loan with a guarantor, if you don't pay - the guarantor is obliged to repay your loan.

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