4 ms·

I wonder how much of this is premediated vs people getting addicted to credit or having a drop in income and naturally reaching their limit before going bust?

• stevesimmons 5y ago
  Normal credit card customers broadly fall into two groups: a) try to pay down to zero: "interest is expensive, so I pay off my balance as quickly as I can" b) max out the credit limit: "I like to buy stuff. Any unused credit is a wasted opportunity". [1] Even if people in category (b) have trouble repaying their balance, they will call the credit card company and negotiate a sustainable way to recover. Ideally they do this proactively. If not, the Collections department will help them find a solution. Bust-out fraud, by contrast, is not normal: appear like a good customer for 6 months, get offered a credit limit increase, max out the new high limit, and suddenly disappear. [1] Before anyone jumps in and say this is irrational or poor financial literacy, it can often be a well-thought through decision. Just with a different set of tradeoffs than your own. I use to run portfolio management for a credit card company. I worked with two very smart data scientists. One was in category (a). The other in category (b). Both knew exactly how much it cost in interest because they built the profitability models. And yet, buying nice stuff was still more important for the (b) person.
  • PhantomGremlin 5y ago
    a) try to pay down to zero: "interest is expensive, so I pay off my balance as quickly as I can" In the Bizarro world of credit cards, this person is a "deadbeat". You can't make this up! https://www.investopedia.com/terms/d/deadbeat.asp https://www.investopedia.com/terms/d/deadbeat.asp