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New Member
Duality240
Posts: 15
Registered: ‎09-03-2011
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College essay on interest rates

Hello,

 

I am a college student and I am researching credit card interest rates for an essay that I am writing.  The essay is supposed to be persuasive and the point I want to argue is  "A consumer’s interest rate for credit card debt should not be based on their credit score".  A persuasive essay does not contain opinions but your opinions will help to guide me in my research.  I appreciate any and all comments whether for or against my argument.  Thank you for taking the time to read my post.

Senior Contributor
Wolf3
Posts: 3,197
Registered: ‎01-24-2010
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Re: College essay on interest rates


Duality240 wrote:

Hello,

 

I am a college student and I am researching credit card interest rates for an essay that I am writing.  The essay is supposed to be persuasive and the point I want to argue is  "A consumer’s interest rate for credit card debt should not be based on their credit score".  A persuasive essay does not contain opinions but your opinions will help to guide me in my research.  I appreciate any and all comments whether for or against my argument.  Thank you for taking the time to read my post.


Give us your basic points for this and we will take a shot at it.

Established Contributor
Tazman81
Posts: 719
Registered: ‎06-23-2010
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Re: College essay on interest rates


Wolf3 wrote:

Duality240 wrote:

Hello,

 

I am a college student and I am researching credit card interest rates for an essay that I am writing.  The essay is supposed to be persuasive and the point I want to argue is  "A consumer’s interest rate for credit card debt should not be based on their credit score".  A persuasive essay does not contain opinions but your opinions will help to guide me in my research.  I appreciate any and all comments whether for or against my argument.  Thank you for taking the time to read my post.


Give us your basic points for this and we will take a shot at it.


I agree with Wolf.  We would need your points on why you think that an interest rate should NOT be based on a credit score.


Starting Score: Eq: 662 Tu: 532 (03/02/2011) CH7BK 01/12/2009 Discharge
Current Score: Eq: 692 (04/03/2013) Tu: 717 (04/03/2013)
Goal Score: Eq: 720 Tu: 740

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New Member
Duality240
Posts: 15
Registered: ‎09-03-2011
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Re: College essay on interest rates

Well, obviously I would be writing from the point of view of a consumer as opposed to a credit card company exec. or financial genius.  It woud be easier to explain why using a credit score is the only fair way to determine risk factor but where's the fun in that?

 

1.  Credit card scores vary based on the reporting agency and consumers have no control over which agency credit card companies get their score from.

2.  There is no leniency (I.E. the difference between a credit score of 759 and 760 can be thousands of dollars in interest)

3.  Credit scores remove the human element.  A credit score does not care if you broke your foot and was out of work for six weeks.

4.  Being 30 days late on a payment can affect your credit score for years.  It takes years to get a good credit score but only one month to ruin it.

 

These are just a few of the arguments I plan to use in my essay.  I would like to hear more for/against using credit scores as the single determining factor for evaluating risk.  I haven't written my opening statement yet but I plan to compare using credit scores to racial profiling in airports!  That should get the readers attention!!!

Frequent Contributor
raenys
Posts: 387
Registered: ‎08-25-2011
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Re: College essay on interest rates

This is such a loaded question. 

I am going to spit out what immediately comes to my mind.

 

Not enough people are educated as to what goes into the calculation of  FICO score.  Credit is sometimes damaged in youth and bad score can follow someone for a long time even if circumstances have significantly improved. It is not an easy task nor a quick task in improving one's score. A person has to be proactive, and still it can take years to improve it to the point where you get decent interest rates. 

 

 FICO scoring focuses on its own formula for determining your score.  I thought if I simply paid my debts timely, my score would be so amazing that I would get the best rates. NOPE! TImely payments is ONE factor that gets accounted for (someone correct me if I am wrong but timely payments only account for 35% of the overall score). Little did I know that too many inquiries for new credit affect it, having low credit limits affect it, utilization factors in, credit mix, etc. I found on myfico that the ideal utility is less than 9%. I was actually hurting my score by not getting or using credit cards. Why should a persons score be punished for not wanting credit cards? Why should the score be low because you are actually using the credit limit THEY give you so long as you pay timely EVERY month and never go over the limit? (PS..I don't use the credit limits ever...I always pay in full).  I say don't give me the credit line if you really don't want me to use it. The game is, if you do use it, make sure it does not report more than 9% utility or the score will drop. It seems soo crazy to me. All I can say is thank god for rewards.  If it weren't for that, I would just use my debit card, but I know that is the wrong move.

 

in my opinion, you get a good interest rate only if you play the FICO "game". It is not enough to only have an excellent history of timely payments.You can still get "punished" if your don't meet the other factors.

 

 

 

A score does not give a full picture on a person's ability to pay or necessarily the fairness in determining the interest rate. The Score I guess is supposed to determine not just one's ABILITY to pay, but the person's RESPONSIBILITY in making payments. What good would it be someone earned 300K per year but never bothered to pay their bills on time? But again , making timely payments every single month for years certainly helps a score significantly, but unless you are staying within FICO guidelines, you still my not have the best score to get the best interest rates. In my own experience, a FICO score can punish you for a long time for old mistakes in youth. I know personally speaking, I grew up, became responsible, and have a six figure income. My EQ FICO is now 746, but I can tell you it took me YEARS to get there, and STILL I can't get the best interest rates. Now I try to follow the recommendations on this forum as much as possible.  Knowledge is key when it comes to having a great credit score. This is all in my opinion of course.

 

Not sure if this helps you. LOL I feel like I ranted more than I helped :smileyhappy:

Senior Contributor
Wolf3
Posts: 3,197
Registered: ‎01-24-2010
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Re: College essay on interest rates


Duality240 wrote:

Well, obviously I would be writing from the point of view of a consumer as opposed to a credit card company exec. or financial genius.  It woud be easier to explain why using a credit score is the only fair way to determine risk factor but where's the fun in that?

 

1.  Credit card scores vary based on the reporting agency and consumers have no control over which agency credit card companies get their score from.

2.  There is no leniency (I.E. the difference between a credit score of 759 and 760 can be thousands of dollars in interest)

3.  Credit scores remove the human element.  A credit score does not care if you broke your foot and was out of work for six weeks.

4.  Being 30 days late on a payment can affect your credit score for years.  It takes years to get a good credit score but only one month to ruin it.

 

These are just a few of the arguments I plan to use in my essay.  I would like to hear more for/against using credit scores as the single determining factor for evaluating risk.  I haven't written my opening statement yet but I plan to compare using credit scores to racial profiling in airports!  That should get the readers attention!!!


Where to start?

 

I think you are assuming that CC interest rates are based on FICO score.   It is a factor but the assumption is false.   You can still make your point but it is harder to argue a false assumption is false. 

 

By persuasive, do you mean a logical rational argument or a political one where you use peoples emotional hot buttons to make a point?  Bringing in racial profiling at airports is such a political arguement.   IMO, it is offensive, and I;ll be glad to rip it apart if you want to post it.   I suggest you stick to the rational arguments.

 

Points 1 to 4 are not yet leading to your conclusion.

Senior Contributor
Walt_K
Posts: 3,065
Registered: ‎11-02-2009
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Re: College essay on interest rates

If you're going to write this, maybe you should change your focus.  There's a reason banks uses credit scores.  They're processing huge transactions.  It makes more sense to use an objective criteria than to try to make individualized decisions for each person.  Plus, people suck at making judgments.  The data is almost certainly going to show that on the whole, they make more money by using objective indicators as risk predictors. 

 

I think we sometimes forget how much protection we really do have with credit reporting.  Yes, things stay on for seven years.  But for the most part, this is true information.  The law is saying that they can't report true information about you past a certain amount of time.  If I ever loaned someone money and they didn't pay me back, it'd be a lot longer than 7 years before I'd loan money to them again.  And I would tell anyone who asked me that they didn't pay me back. 

 

In any event, I don't think I would buy an argument that credit score shouldn't be used to determine interest rate across the board.  But I could accept that there is a market that is underserved of people whose scores aren't a true predictor of risk.  And that someone could position themselves well to move into that space.  Peer to peer lending sites sort of do this.  My score was horrible in 2008 due to a prolonged period of unemployment.  Once I started working again, there was no way I could get a reasonable loan.  And I had a lot of CC debt.  But I had some friends that knew me and understood that the only reason I missed payments was being out of work.  They loaned me the money to pay off some high interest CCs, and I paid them back at a good rate.  I saved a lot on interest and they made way more than they would have made in a CD. 


Starting Score: ~500 (12/01/2008)
Current Score: EQ 681 (04/05/13); TU 98 728 (01/06/12), TU 08? 760 (provided by Barclay 1/2/14), TU 04 728 (lender pull 01/12/12); EX 742 (lender pull 01/12/12)
Goal Score: 720


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Frequent Contributor
snowangel
Posts: 291
Registered: ‎07-29-2011
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Re: College essay on interest rates

Another point that you can add to your essays is that scores can  be manipulated - being added as an authorized user on someone else's account, having new accounts backdated (amex), pay for deletes, and such.

 

The other point to consider is that a credit score is just a snapshot of someone's credit at one point in time.  Since utilization is factored into a credit score, when a CC company reports can vary someone's score.  Did they make a large purchase 3 days before their statement cut but  paid it off a few days later?  Their score could be lower for the 30 day period while that balance reported.    

 

Credit inquiries also affect a person't score and tend to be looked at negatively, but what is someone is shopping around for credit cards like they would car loans?  



EQ: 662 | TU: 682 | EX Plus: 764
SL baddies fall off between Jan '13 - Oct '14
Senior Contributor
Wolf3
Posts: 3,197
Registered: ‎01-24-2010
0

Re: College essay on interest rates


snowangel wrote:

Another point that you can add to your essays is that scores can  be manipulated - being added as an authorized user on someone else's account, having new accounts backdated (amex), pay for deletes, and such.

 

The other point to consider is that a credit score is just a snapshot of someone's credit at one point in time.  Since utilization is factored into a credit score, when a CC company reports can vary someone's score.  Did they make a large purchase 3 days before their statement cut but  paid it off a few days later?  Their score could be lower for the 30 day period while that balance reported.    

 

Credit inquiries also affect a person't score and tend to be looked at negatively, but what is someone is shopping around for credit cards like they would car loans?  


Might be a better topic.

 

Manipulation of Credit Score via utilization is constantly promoted on this site.  

Valued Contributor
wmarat
Posts: 1,754
Registered: ‎11-03-2007
0

Re: College essay on interest rates


Duality240 wrote:

Well, obviously I would be writing from the point of view of a consumer as opposed to a credit card company exec. or financial genius.  It woud be easier to explain why using a credit score is the only fair way to determine risk factor but where's the fun in that?

 

1.  Credit card scores vary based on the reporting agency and consumers have no control over which agency credit card companies get their score from. In some cases I was able to get lender to pull report of my choosing. (Froze two others)

2.  There is no leniency (I.E. the difference between a credit score of 759 and 760 can be thousands of dollars in interest)

3.  Credit scores remove the human element.  A credit score does not care if you broke your foot and was out of work for six weeks. That's the main difference between banks andcredit unions. One can talk to loan officer of credit union and presuade him/her to lend.

4.  Being 30 days late on a payment can affect your credit score for years.  It takes years to get a good credit score but only one month to ruin it.

 

These are just a few of the arguments I plan to use in my essay.  I would like to hear more for/against using credit scores as the single determining factor for evaluating risk.  I haven't written my opening statement yet but I plan to compare using credit scores to racial profiling in airports!  That should get the readers attention!!!


1. Does credit score indeed predict financial behavior? Doubt it.

2. How operate countries which do not implement "credit scores" 

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