3 ms·

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 irres

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 3y 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 3y ago
  This is the textbook definition of irresponsibility.
- willcipriano 3y ago
  He didn't even ask if they identify as someone who pays their bills on time. Solvency is a social construct.
  - zem 3y 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 3y 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 3y 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 3y 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.
- xhkkffbf 3y ago
  It seems strange to me that a number designed to measure risk has nothing to do with it. If this were really true, a smart bank would come along with their own score and undercut it. They have many years and many millions of data points that connect credit scores with repayment of loans. Banks that do a better job of measuring it get wealthier. It's a very simple system.

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 3y 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 3y ago
This is the textbook definition of irresponsibility.
willcipriano 3y ago
He didn't even ask if they identify as someone who pays their bills on time. Solvency is a social construct.
- zem 3y 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 3y 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 3y 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 3y 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.
xhkkffbf 3y ago
It seems strange to me that a number designed to measure risk has nothing to do with it. If this were really true, a smart bank would come along with their own score and undercut it. They have many years and many millions of data points that connect credit scores with repayment of loans. Banks that do a better job of measuring it get wealthier. It's a very simple system.