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The banks have a profit motive for assessing credit risk accurately. They are the ones who make money if this is done right. So why don't the banks pay for it?
by apatters 10y ago
The banks have a profit motive for assessing credit risk accurately. They are the ones who make money if this is done right. So why don't the banks pay for it? Why are we subsidizing the banks' business model by paying for credit reports at all? I don't have to pay if I want to receive more than one bank account statement per year, and bank accounts are another product the bank uses to make money off of me, just like loans.
- tacostakohashi 10y agoYou also have a profit motive for having your credit risk assessed accurately - you get credit, at a better interest rate. The banks do pay for it - they have to pay a fee do get your credit report.
- kd0amg 10y agoThe banks have a profit motive for assessing credit risk accurately. They have a clear incentive to not underestimate prospective borrowers' credit risk (or they'll lose more in defaults than they gain in interest), but the only incentive to not overestimate someone's credit risk is that someone else might offer a loan on better terms. Even if they are aware of flaws in their assessment process that overestimate a borrower's risk, they probably feel safe in the knowledge that everyone else is using that same process and will overestimate risk in the same way. A more accurate credit assessor could profit from this situation ("get your credit reports from us, and you can undercut lenders who rely on the big three"), but the barrier to entry is rather high.