In America, good credit is the pathway to many opportunities like an affordable mortgage, car loan, and access to services like utilities at reasonable prices. Bad credit limits you, to some extent in the US, but nothing like it does in China. Changes in the social system there have made the high cost of bad credit stunningly grim.
No one wants bad credit and having excellent credit certainly makes life easier, but poor credit won’t ruin your life here in the US or in most Western nations, Europe, and other regions. However, China structures itself differently and makes rules unlike those anywhere else in the world. Here’s a look at what a bad credit score can do there.
Social credit system
Here in America, we have a credit tracking system, but the rigors in China are more extreme. They now monitor what’s called “social credit” which ranks citizens on many aspects of behavior. If you don’t live up to the expectations of the government, you can find yourself banned from flying on planes or traveling by rail for as long as 12 months.
It’s not just skipping out on bills that can land you in hot water in the largest Asian nation, but also smoking on trains, using an expired ticket on transit, or spreading misinformation about acts of terrorism. Financial misdeeds could also result in a ban including employers that fail to pay insurance premiums and citizens who don’t pay fines or tickets.
Permanent ban possible
Although the initial notices said the bans could last a year, Chinese President Xi Jinping said the new system is based on the tenet of “once untrustworthy, always restricted” which seems terribly harsh. Evidence hints that even before this news leaked out of China, the government had been banning residents from flights due to “social misdeeds.”
One means the government is reportedly using to gather data is tapping into the system of Zhima Credit. This agency tracks activity on the AliPay smartphone payments system, much like Apple Pay in the US. Disturbingly, consumption activity from the payment system may be shared with the Chinese government although Zhima denies reporting to the government.
“Bad” people pay more
Already, Zhima Credit ratings are affecting the way Chinese citizens live. Those with lower credit scores must pay higher rates to rent hotel rooms, bicycles, umbrellas, and more. The CEO of Zhima said their system make sure that “bad people in society don’t have a place to go” while “good people can move freely.”
More than 6 million Chinese citizens have been banned from air travel for poor social credit. It’s not just the poor that could wind up blacklisted. Last year, tech pioneer Jia Yueting made the blacklist of high-profile citizens with bad credit. This master list means no fast train access and even big-ticket purchases can be barred.
Named and shamed
In America, if you’re in debt, it’s a private matter. It’s against the Fair Debt Collection Practices Act for creditors and debt collectors to tell anyone about your financial delinquency. In contrast, China is encouraging local governments to set up websites to name and shame those who have defaulted on debt.
Even worse, a phone company in Beijing tagged people behind on their bills so that when they make calls, the person on the other end of the line is notified of their delinquency. So far, this new system has reportedly blocked people from more than 11 million flights and more than four million high-speed rail trips.
Credit scores matter
Thankfully, America isn’t adopting a system like China. However, there are systems in place in the US where a form of social credit determines access. Services like Uber and Lyft rely on reviews so that drivers and passengers can rate each other and decide whether they will transact with each other. Those with poor ratings are often shunned.
Credit scores do matter in the US, but a poor FICO rating won’t leave you unable to travel or access critical services. However, it can affect how much you’ll pay for them. If you’re ready to improve your credit today, check out Credit Score Keys.