Not all countries use credit scores to assess a debtor’s creditworthiness. Japan, the Netherlands, and Spain rely on factors like one’s income, repayment history, and length of employment to determine creditworthiness. Some countries hardly set up credit scoring systems or agencies to score debtors.
For example, in the Netherlands, good credit means the debtor hasn’t been blacklisted due to bad debts.
A credit score is a number awarded to a debtor to depict their creditworthiness. The number is between 300 and 850 and is based on one’s debt level, number of open accounts, and repayment history. The higher the score, the higher the chances of getting credit from potential lenders.
Lenders rely on credit scores to determine one’s ability to repay debt on time. Fair Isaac Corporation is credited with developing the credit score model which has been replicated in many countries. Banks based in the U.S., for example, are notorious for using credit scores to determine customers who qualify for loans. However, not all countries use this model:
Here, lenders don’t use credit scores to rank debtors; instead they look at the borrower’s income and experience in repaying debts. Borrowers who have defaulted payments are registered at the Bureau Krediet Registratie (BKR), the governing credit registry bureau.
Initially, Brazil didn’t have a credit scoring system. Financial institutions relied on negative reporting to determine a borrower’s creditworthiness. Once a borrower pays off debt, the lender would remove their debts from the credit register.
However, Brazil has since set up a credit scoring system following government legislation allowing the creation of credit bureaus.
Spain is another country that doesn’t use credit scores rather it relies on the borrower’s credit history to determine a debtor’s creditworthiness. This information is available on the credit register called the Risk Management Center.
The agency tracks a borrower’s credit and loan activity from various financial institutions, focusing on the report's negative items. If a customer has any negative remarks on their report, they’re blacklisted.
Australia uses credit scores but not as much as in the U.S. In addition lenders look at other factors like the borrower’s savings and income. Initially lenders analyzed your credit report only to determine a borrower’s creditworthiness.
You were denied credit if you had defaulted payments or had unpaid bills. Until 2014, credit reporting in Australia solely relied on negative reporting. It was then positive credit reporting was introduced to make balanced analysis of a customer’s borrowing history. This meant that a credit report would show two years of the borrower’s financial data, including credit card and mortgage payments.
Like Spain and the Netherlands, Japan doesn’t use credit scores. Lenders rely on factors like the borrower’s income and length of employment to determine their creditworthiness.
Lenders in France use a borrower’s bank statement to determine if they’re creditworthy instead of credit scores. A borrower provides three months of bank statements and paperwork to prove their income. The bank then analyzes the reports and performs a bank-by-bank analysis to determine your credit status.
Although banks aren’t allowed to share a customer’s credit information, French banks rely on it to determine if you qualify for a loan. For example, if you open an account at Bank A, the bank codes, you as a ‘yes,’ or ‘no’ for credit applications.
Credit scores are not universally used. The Netherlands, Brazil, Spain, Australia, Japan, and France do not use credit scores to assess borrowers' abilities to pay back loans.