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What determines the "spread"?

Regular Contributor

What determines the "spread"?

In both of the notices that I have received from my two CC issuers, it was explained that the new method for figuring my interest rate is the current prime rate -plus- something called a "spread". The problem is, I can find no explanation on either companies website, nor in the provided mailings that explain just -exactly- how they are arriving at this "spread" figure.

 

Can one assume that it's based solely on my credit score, or do I need to get cynical that this is an intended "gray area" that CCC's could be taking advantage of?

EQUIFAX - 640 1/05/12 - Goal of 720 by Mid May!
Transunion - 637 - 01/15/10
Message 1 of 5
4 REPLIES
Senior Contributor

Re: What determines the "spread"?

You can never go wrong with being cynical.  Smiley Wink

 

While I'm sure your FICO plays a part, there must be other factors such as how much $$ they need to raise to pay the CEO's million $ bonus.

IAALBNYL
Message 2 of 5
Established Contributor

Re: What determines the "spread"?

variable rates are based on a index, the spread is what they add to the to the index to your rate , most card use the prime lending rate published in WSJ

 

Which is an average of what bank are charging,bankscan charge any the want, but enough banks to buck to system to affect the system so the ptime rate is consistanly 3% than it costs them to borrow the money to you, evenif they don't add a spread , they are making a 3% profit

People say "Only apply for credit you NEED"

I say "apply for credit you have PRATICAL use of"

I don't have AMEX card because I don't want a card that suffers from PMS
Message 3 of 5
Regular Contributor

Re: What determines the "spread"?


rbbyrbsn wrote:

variable rates are based on a index, the spread is what they add to the to the index to your rate , most card use the prime lending rate published in WSJ

 

Which is an average of what bank are charging,bankscan charge any the want, but enough banks to buck to system to affect the system so the ptime rate is consistanly 3% than it costs them to borrow the money to you, evenif they don't add a spread , they are making a 3% profit


I'm aware of how the prime rate is determined as part of the overall percentage APR figure. It's the "Spread" portion of the APR that doesnt seem to have any rhyme or reason and is the basis for my original question. If a CC customer has a new variable rate of 18%, and the prime rate for that billing period is 3%, then that means the "spread" is 15%. Is my FICO score being used as the only determinate in calculating that 15%, or am I being charged that 15% because the CCC can charge me anything they want?
EQUIFAX - 640 1/05/12 - Goal of 720 by Mid May!
Transunion - 637 - 01/15/10
Message 4 of 5
Highlighted
Senior Contributor

Re: What determines the "spread"?

It's based on the issuer making your spread whatever they feel like making it. They likely have a system for determining what the spread will be - they also have no obligation to explain it to you. And no two issuers will have the same system. A lot more than your FICO score is being considered in determining what your spread will be. Don't forget that you have an internal history with the card and that carries a lot of weight. Strength of payment is frequently one of the considerations.
Message 5 of 5