While credit score reporting is a concept that extends around the world, there are distinct variances in the systems used by different countries, as well as in the culture of credit itself.
Compared to Europe, the UK has more in common with the American approach to credit: Brits strive to get a mortgage rather than renting perennially, and rely heavily on debt culture.
In the UK, there are three official credit scoring companies and they use UK-specific criteria to determine creditworthiness. This means that, as in many countries, those immigrating to the UK won’t automatically benefit from their domestic credit rating. Instead, credit scoring agencies would firstly check that the applicant is on the UK electoral roll, to confirm personal information and residence details. They would then access other data, such as court records, to check whether they have had legal action taken against them due to debt. And they would likely also look at any credit links, for example joint bank accounts or utility bills, and the strength of that connection’s credit.
Once a profile is established, credit rating agencies will then look at how many credit reference checks have been carried out against a person’s profile, ranging from standard checks by utilities firms, such as gas and electricity providers, to other checks by store card and other credit providers. If this number is above average this suggests the person is actively seeking a lot of credit. Depending on the strength of their finances, this may count against them. In the UK, some lenders also share credit management data with other lenders and organisations, to amass a full picture of an individual’s credit health across credit cards, store cards, mortgages, loans, utilities contracts and bank accounts. This information can range from whether they’ve defaulted on payments to the amount they repay on debt each month.
Similar to the UK, credit – or debt – is an inherent part of personal financing within the USA and Canada, which caused particular problems in the USA during the sub-prime mortgage crisis. In Canada, credit scoring works on a scale of 300 to 900, which is similar to the USA’s 300 to 850 score. Canada has two credit bureaus, while the USA has three.
Europe has a different cultural and financial approach to debt, in that it’s common in many countries to rent property permanently and avoid taking out a mortgage or amassing debt. Lending criteria also tends to be more stringent. While credit rating systems vary from country to country, there is still a centralised European record for those who make late repayments. Carrie Coghill of FreeScore.com explains:
“Each loan application is reviewed based on your current salary, your family situation, current debts, residence status, and other factors. However, if you don't make timely payments on loans, the lender puts you in a special file that's shared by all lenders across most of Europe, and you'll have a great deal of difficulty getting a loan.”
These countries have a more advanced credit reporting system than the UK and USA due to better technology and database systems. Furthermore, consumer credit reporting is also combined with commercial credit reporting, which is a particular advantage to SMEs seeking credit.
After the economic crisis that affected many South American countries in the 1980s, a fairly strong credit reporting system was put in place, including banks and private lenders. However, there are differences throughout the region. Brazil, in particular, has made changes to the way debt is reported, with public and private credit agencies reporting positive as well as negative information. This is in contrast to its system pre-reform, where debtors’ names were removed from delinquent borrower lists once they had repaid their loans, which prevented the creation of a comprehensive credit database.
With such different international systems and cultural attitudes to credit, it remains to be seen which is the most effective. However, with Germany emerging as the most stable country to lead decisions around Eurozone financing, perhaps this is proof that a cautionary approach to credit is key.
Check out our International Credit Scoring Reports