4 ms·

>Credit card management has no indication how I'll manage a loan (whether a house or car) due to the nature of spending and utilization I think the actuary-typ

>Credit card management has no indication how I'll manage a loan (whether a house or car) due to the nature of spending and utilization I think the actuary-types who design the scoring models would disagree vehemently with this one. Scoring models are built from regressions on actual default rates.

popmystack 10y ago
Considering renting history is not accurately reported in any meaningful form, I don't know how they disagree with me. Most people probably aren't willing to give up their car, I'd figure those that have credit issues are still most likely making car payments. It's one thing to say "I see you've been late on a few of your car payments, so we're going to give a higher interest rate." and it's something else to say "You have a few unpaid medical bills/late CC payments so we're going to give you a higher interest rate on this car loan." I just have a hard time really believing that is the case. Often credit issuers simply look at the totality of everything, instead of appropriately looking the history of the specific financial contract they're wanting to issue.
- mikeash 10y ago
  Accurately predicting your likelihood of default is worth a ton of money. If every company makes bad assumptions like you describe, then a new company could make a ton of money by correcting those bad assumptions and giving out loans to people who can't get them otherwise. That doesn't mean that systematic failures can't happen, but they're pretty unlikely. It's much more likely that you underestimate the correlation between these disparate defaults than that the banks overestimate it.
  - popmystack 10y ago
    > then a new company could make a ton of money by correcting those bad assumptions and giving out loans to people who can't get them otherwise. This quite literally happens already.
    - mikeash 10y ago
      That's pretty much my whole point. New companies regularly step in and take advantage of competitors' biases, so anything that looks like a long-term systematic bias probably is actually a reflection of a real correlation instead, because if it was a real bias, somebody probably would have stepped in and taken advantage by now.

popmystack 10y ago

Considering renting history is not accurately reported in any meaningful form, I don't know how they disagree with me. Most people probably aren't willing to give up their car, I'd figure those that have credit issues are still most likely making car payments. It's one thing to say "I see you've been late on a few of your car payments, so we're going to give a higher interest rate." and it's something else to say "You have a few unpaid medical bills/late CC payments so we're going to give you a higher interest rate on this car loan." I just have a hard time really believing that is the case. Often credit issuers simply look at the totality of everything, instead of appropriately looking the history of the specific financial contract they're wanting to issue.

mikeash 10y ago
Accurately predicting your likelihood of default is worth a ton of money. If every company makes bad assumptions like you describe, then a new company could make a ton of money by correcting those bad assumptions and giving out loans to people who can't get them otherwise. That doesn't mean that systematic failures can't happen, but they're pretty unlikely. It's much more likely that you underestimate the correlation between these disparate defaults than that the banks overestimate it.
- popmystack 10y ago
  > then a new company could make a ton of money by correcting those bad assumptions and giving out loans to people who can't get them otherwise. This quite literally happens already.
  - mikeash 10y ago
    That's pretty much my whole point. New companies regularly step in and take advantage of competitors' biases, so anything that looks like a long-term systematic bias probably is actually a reflection of a real correlation instead, because if it was a real bias, somebody probably would have stepped in and taken advantage by now.