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Credit scores can determine whether you’ll get approved for a loan, but could they bar you from traveling on trains and planes?
According to China’s new “social credit” system, yes. As of May 1, Chinese citizens who propagate false information about terrorism or smoke on trains will be put on restricted lists and prevented from traveling for up to a year.
Other misdeeds that may also send a Chinese citizen’s social credit score to the “no fly” zone include using expired tickets or causing trouble on flights.
More troublingly, citizens who commit financial wrongdoings — such as failing to pay a fine — could also be subject to these restrictions. China’s National Development and Reform Commission issued two statements on its website last week explaining the policies.
As Reuters reports, the move comes as part of President Xi Jinping’s desire to create a social credit system with the principal tenet of “once untrustworthy, always restricted.”
The “social credit” system could extend far beyond planes and trains too. Marketplace reports a case in which a blacklisted citizen was prohibited from obtaining loans, buying properties and even paying private school tuition for his child.
All of this sounds a bit unprecedented, and you might be wondering if the U.S. could be next in line. The good news — at least for consumers — is that the U.S. credit system doesn’t function quite like President Jinping’s social credit system.
What does this actually mean?
China doesn’t have a financial credit scoring system like the U.S. does. Because many Chinese do not have a credit card, mortgage or other type of loan, it’s hard to calculate a person’s credit based on factors commonly used in the U.S., such as payment history and age of credit history.
Instead, China’s “social credit” score attempts to identify other types of behaviors that could determine a person’s creditworthiness. There may not seem to be any connection between paying off your loans and smoking on a train, but in the eyes of Chinese authorities, both behaviors might speak to your overall creditworthiness and credibility.
Another key difference between the Chinese and U.S. systems is when you can get such derogatory remarks removed from your credit reports.
In the U.S., derogatory marks may stay on your credit reports for years, but they eventually can fall off and you can diminish their impact by practicing good credit habits.
In China, however, social credit operates under the premise of “once untrustworthy, always restricted.” It’s unclear how someone on the blacklist can be removed from it.
Why should you care?
Fortunately, you don’t need to worry about a social credit score taking off in the U.S. any time soon.
The three major national consumer credit bureaus — Equifax, TransUnion and Experian — have recently made changes that could lessen the impact of derogatory marks on your credit scores.
The three bureaus estimate that about half of all tax liens and nearly all civil judgments have been removed from consumers’ credit reports as of July 1, 2017. The change is a part of the National Consumer Assistance Plan, which is a result of discussions and an agreement between the three major credit bureaus and 31 state attorneys general reached in 2015.
This change caused a number of credit scores to rise slightly in 2017 and acts as reassurance that the U.S. isn’t headed down the same path as China — at least for now.
China’s social credit system is no doubt concerning to anyone who doesn’t think credit should prevent people from using basic services.
Fortunately for U.S. citizens, the trend seems to be moving in the opposite direction since credit bureaus have begun to place less of an emphasis on civil delinquencies and public records.
If you’re concerned about the effects of derogatory marks on your credit reports, you can follow a few simple guidelines:
- Wait. Assuming you address the underlying cause, most derogatory marks fall off your credit reports with time. Even a bankruptcy should fall off seven to 10 years from the filing date.
- Pay on time. Pay off any accounts that are past due and continue making at least the minimum payments on your open accounts. Practicing good credit habits can be a great way to build your credit over time.
- Dispute any inaccuracies. You can dispute errors on your TransUnion credit report using Credit Karma’s Direct Dispute™ feature. If you see something that looks wrong, don’t simply wait for it to go away.