5 ms·

I wasn't aware that the fees are a function of credit score. What's the rationale for this?

by malshe 4y ago

olliej 4y ago
To benefit rich donors. That’s really all there is to it. It’s actually a really great example of how people’s bias regarding fairness and equality works: Here we have a bunch of fees that are discounted if you have a higher credit score. The discount is being reduced. A bunch of people (and this article) are losing their shit over this reduction in discount being unfair because it only impacts people with higher credit scores, despite the entire discount not existing at all for people with lower credit scores. And this is before we factor in the much more substantial impact of worse interest rates, etc (the article talks about how this could cost $480 a year, while ignoring the $2000/year a half percent increase in interest rate costs
- searealist 4y ago
  Your framing is incredibly odd to me and probably most people. There is no discount. There is only extra cost to cover risk if you have a history of being irresponsible.
  - zem 4y ago
    the fact that you're equating a bad credit score to irresponsibility is the fundamental fallacy underlying most of the arguments in the comments here.
    - searealist 4y ago
      This is the textbook definition of irresponsibility.
    - willcipriano 4y ago
      He didn't even ask if they identify as someone who pays their bills on time. Solvency is a social construct.
      - zem 4y ago
        I suspect you do not really understand The nuances of "identifying" but yeah, there is a definite and large social construct to solvency, mediated by how society is willing to treat you financially. poor taxes are a good example of this.
  - olliej 4y ago
    The whole point here is we're talking about fees unrelated to the general interest cost of being "high risk". This does of course require a baseline assumption of "good credit" == "low risk". When I got my first mortgage in the US I had tremendous difficulty, because "credit score" is not related to risk, but to regularity of credit payments. I had "bad" credit because I did not use credit cards. Because I did not have a car loan. Because I did not have random debt. I very nearly got denied because despite being able to easily make mortgage payments, being stably employed for the entire period of my US residence, my bank had a hard rule of requiring at least 3 different "recurring debts" - but I paid my fixed bills annually so it is cheaper. "yay". Building your "credit score" requires objectively bad choices: you must use credit services even if you don't need to, you must not pay off all your debt, you must apply for more credit than you need, etc all of which costs money. At the same time sensible actions like shopping for good credit options results in credit checks that lower your credit rating. All this before we get to the rating agencies knowingly reporting false information and charging you to stop them, which in any other industry is called extortion.
    - searealist 4y ago
      So your argument is that credit scores do not correlate with risk? How do you think these models get made? Do you understand how trivial it is for an institution to analyze the past 10 years of loans and see whether the rates they are charging leads to profits or losses.
      - toast0 4y ago
        I think there are many negative factors in credit scores that are predictive, and some that are more iffy. Getting dinged for making late payments or missing payments makes a lot of sense. Getting dinged for not having a car loan or a mortgage is I dunno? Solid loan underwriting also takes into account source of income and some amount of history of income, but it's not part of the credit score at all, which is kind of funny. If your credit limits are out of step with your income, you might get dinged for high balances that you regularly pay off and have capacity to do so, but your limits are just low compared to your income; but you might be getting lots of points for having spare credit, even if it's at a level that would take you a decade to pay back because your income declined and you lenders never found out and didn't reduce your limits. Some lending is done strictly by credit scores, which seems foolish, but usually it's for smaller amounts, so I guess it works out.
xyzzy123 4y ago
It's a signal that correlates with risk of default on the loan.

I wasn't aware that the fees are a function of credit score. What's the rationale for this?

by malshe 4y ago

I wasn't aware that the fees are a function of credit score. What's the rationale for this?

To benefit rich donors. That’s really all there is to it. It’s actually a really great example of how people’s bias regarding fairness and equality works: Here we have a bunch of fees that are discounted if you have a higher credit score. The discount is being reduced. A bunch of people (and this article) are losing their shit over this reduction in discount being unfair because it only impacts people with higher credit scores, despite the entire discount not existing at all for people with lower credit scores. And this is before we factor in the much more substantial impact of worse interest rates, etc (the article talks about how this could cost $480 a year, while ignoring the $2000/year a half percent increase in interest rate costs

searealist 4y ago
Your framing is incredibly odd to me and probably most people. There is no discount. There is only extra cost to cover risk if you have a history of being irresponsible.
- zem 4y ago
  the fact that you're equating a bad credit score to irresponsibility is the fundamental fallacy underlying most of the arguments in the comments here.
  - searealist 4y ago
    This is the textbook definition of irresponsibility.
  - willcipriano 4y ago
    He didn't even ask if they identify as someone who pays their bills on time. Solvency is a social construct.
    - zem 4y ago
      I suspect you do not really understand The nuances of "identifying" but yeah, there is a definite and large social construct to solvency, mediated by how society is willing to treat you financially. poor taxes are a good example of this.
- olliej 4y ago
  The whole point here is we're talking about fees unrelated to the general interest cost of being "high risk". This does of course require a baseline assumption of "good credit" == "low risk". When I got my first mortgage in the US I had tremendous difficulty, because "credit score" is not related to risk, but to regularity of credit payments. I had "bad" credit because I did not use credit cards. Because I did not have a car loan. Because I did not have random debt. I very nearly got denied because despite being able to easily make mortgage payments, being stably employed for the entire period of my US residence, my bank had a hard rule of requiring at least 3 different "recurring debts" - but I paid my fixed bills annually so it is cheaper. "yay". Building your "credit score" requires objectively bad choices: you must use credit services even if you don't need to, you must not pay off all your debt, you must apply for more credit than you need, etc all of which costs money. At the same time sensible actions like shopping for good credit options results in credit checks that lower your credit rating. All this before we get to the rating agencies knowingly reporting false information and charging you to stop them, which in any other industry is called extortion.
  - searealist 4y ago
    So your argument is that credit scores do not correlate with risk? How do you think these models get made? Do you understand how trivial it is for an institution to analyze the past 10 years of loans and see whether the rates they are charging leads to profits or losses.
    - toast0 4y ago
      I think there are many negative factors in credit scores that are predictive, and some that are more iffy. Getting dinged for making late payments or missing payments makes a lot of sense. Getting dinged for not having a car loan or a mortgage is I dunno? Solid loan underwriting also takes into account source of income and some amount of history of income, but it's not part of the credit score at all, which is kind of funny. If your credit limits are out of step with your income, you might get dinged for high balances that you regularly pay off and have capacity to do so, but your limits are just low compared to your income; but you might be getting lots of points for having spare credit, even if it's at a level that would take you a decade to pay back because your income declined and you lenders never found out and didn't reduce your limits. Some lending is done strictly by credit scores, which seems foolish, but usually it's for smaller amounts, so I guess it works out.

xyzzy123 4y ago

It's a signal that correlates with risk of default on the loan.