You can have debts totally only up to a certain percentage of your income. Banks require that you produce a monthly budget demonstrating that you have a certain amount left per month after all expenses and debts are paid. You have to be able to prove this by giving them access to your tax and financial records. Most rates for things like homes and cars are consistent from bank to bank across the country.
And how do lenders assess previous defaults when underwriting new loans?
From what I've seen, most developed countries actually do have the equivalent of the US credit reporting agencies. It's just that the functionality goes by different names and is distributed across several different types of entities rather than being centralized in three credit reporting agencies (plus Fair Isaac Corporation / FICO which is a vendor to all of them).
For better or worse, it's not really possible to have a modern economy with high growth rates unless lenders have a reasonably reliable way of quantifying borrower propensity to pay. Debt to income ratio is a piece of that, but some people are just deadbeats.
To be clear, credit reporting and tracking is not the only function of credit scores in the U.S. These functions do exist elsewhere and are often called "registries." They are not private companies, but instead public centralized institutions. Likewise, it is not possible for private companies to loan debt to citizens, even by proxy.
For bankruptcies and defaults, there are similarly court records from public institutions, which you give a bank access to. They cannot search these sources without your consent, though of course they will then not loan to you.
