Question

How does the current credit scoring system in the US affect people's everyday lives? Do you think the US should move to a system like in China in order to improve social outcomes? Why or why not?

Answer 1

In US,a credit score is a number that is assigned to you by credit agencies which shows your creditworthiness. Often banks,lenders,credit card companies,financial institutions etc use this credit score to asses the risk of lending you money because this shows how likely you are going to pay off your debts.Now,this credit score that is assigned to you depends on a number of factors such as

(i)payment history- it shows whether you were able to pay off any debt that you had earlier taken.

(ii)timely payments- it shows even if you paid off your previous debt,whether you were able to make timely payment of installments due.

(iii)debt burden- it shows how much you owe at present and whether you are in a position to manage additional debt with your existing debt.

(iv)credit history- it shows how much total money you have in all your bank accounts.Hence,we conclude that the US should move to a system like in China in order to improve social outcomes.

Talking about the effects of credit score,it is the credit score that determines whether a loan or credit card that you applied for will get approved.High credit score makes you eligible for loans at low interest rate whereas low credit score may disqualify you for loans.If your credit score is not too low,you may end up getting a loan at high interest rate because of the high risk of your default.

All in all,we can say that credit scores in US assesses a person based on his financial behavior which is very different from the credit scoring system that China follows.

In China,people are assigned social credit score which are based on their financial as well as social behavior.It is worth mentioning some of the examples here which include frivolous spending,smoking in no-smoking zones,drunk driving,fraud,spreading fake news through social media etc.People get penalized for such behaviors which include loss of employment,transportation restriction,you can be denied for a job,your kids may remain deprived of studying in good schools and colleges,you may get turned down for renting a house etc.On the other hand,exhibiting good behavior can help you get benefits such as easy recruitment,discount on bill payments,your loan,credit card and visa applications can get approved faster.

While credit scores in the US encourage people to improve their financial health and creditworthiness,credit scores in China encourage people to improve as a person in all dimensions.Financial well-being is important but it is not enough to make a country prosper,thus social behavior definitely has a significant role to play.