So, how do banks decide how much to loan you, if you want a loan, or at what interest rate?
My history of being responsible with debt enables me to borrow large amounts of money while putting a small percentage down, and paying a small percentage interest (3.375%) on the principal. Banks can compete to offer better rates or terms on a loan like that (home mortgage, USA).
Some notion of a credit score, or a person's general creditworthiness is necessary for there to be competition in the loan market. Otherwise how would it work - banks are equally willing to loan to all people, despite their income, savings, and history of paying back loans reliably?
It can be abused but it generally seems to promote an efficient marketplace for loans.
A numerical credit score is only one data point in a lending decision, albiet an important and useful summary one.
In mortgage lending they call this concept the "5 C's" of credit: character, capital, capacity, conditions and collateral. Character speaks to credit history. The credit scores are driven by "tradeline" payment history but lenders can independently verify that information- you disclose all your liabilities at application anyway, they can independently verify them, their history, and base an underwriting decison and price accordingly.
Credit scores are not necessary for competition in the loan market - lending has existed as long as commerce has. They do facilite faster lending descisons and reduce the processing and underwriting workload for lenders.
Historically (at least in America) banks absolutely have not been willing to lend to all comers who could repay and credit scores have probably served to equalize access to credit for more people in a way that wouldn't have happened without them, but they aren't strictly necessary to make or get a loan or even have a market for them. It's just more work for the lenders.
Probably the old fashioned way - by looking at employment history (salary, length of employment, etc.), savings and whatever assets you have (which you can potentially sell to give them their money back in case something happens).
Basically, everything besides a history of paying back loans :-).
Those lacking (some of) these things get smaller loans/bigger interest rates or don't get a loan at all...
>However, if you apply for a credit or mortgage in France, all you will have to provide is your last 3-month bank statements and the last 3 month pay slips (or last 3 year tax returns). It is that simple. There is no credit report or score for you to worry about.
And from what I can read about the credit score, I don't think we're missing much.