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Do you honestly think any lender would stay in business very long if they did this? Especially if there were no consequences to borrowers, (such as a what exists today with a credit score hit that would prevent you from borrowing in the future) why would anyone pay back a debt?
There are problems with credit reports and credit scores, I agree. Medical debt and perhaps even student loan debt shouldn't be on there. However, throwing out the whole thing makes life for most everyone significantly worse, except the rich. The rich will do fine because they have substantial assets to use for loan collateral without any credit scores. How about you? What property would you be able to put up if you needed new car or wanted to borrow for a mortgage?
You're describing borrowing before credit scores. Or at best any unsecured lending was for only very small balances, such as few hundred dollars. So no credit cards with four or five figure credit limits. Mortgage lending with a required a 20% down payment. No 20% cash? Enjoy renting. Before the Great Depression it was a required 50% down payment, and you only had 5 to 10 years to pay off the other 50% or they came and took your house and kicked you out in the street.
Oh, and we think interest rates are bad now. My parents were paying a 12% mortgage interest rate in the 1980s. Do the math on that today to see how much that would increase a monthly mortgage payment putting home ownership even farther out-of-reach of many.
This is the future you're wishing into existence, a return to the "bad old days". If you get your wish, getting ahead for the average American gets harder, not easier.
It would crash housing prices, which would be objectively good. I can't say for certain if it would be worth the other costs.
But with no ability to borrow to buy those, then cheap, houses, who would buy them and why? Sadly the answer would be: those with cash so they could rent them out.
If houses cost less then rent could go down.
There are limits of course. Building a new house has a minimum cost, which factors into the value of existing homes. But with lower investment costs to buy a house, less pressure to make that cost back with high rent.