topic Re: College essay on interest rates in Credit Cards

College essay on interest rates

Anonymous — Sat, 03 Sep 2011 18:30:57 GMT

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.

Re: College essay on interest rates

Anonymous — Sat, 03 Sep 2011 19:01:22 GMT

@Anonymous 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.

Re: College essay on interest rates

Tazman81 — Sat, 03 Sep 2011 19:18:46 GMT

@Anonymous wrote:
@Anonymous 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.

Re: College essay on interest rates

Anonymous — Sat, 03 Sep 2011 19:42:00 GMT

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!!!

Re: College essay on interest rates

Anonymous — Sat, 03 Sep 2011 20:29:01 GMT

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

Re: College essay on interest rates

Anonymous — Sat, 03 Sep 2011 21:27:52 GMT

@Anonymous 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.

Re: College essay on interest rates

Walt_K — Sat, 03 Sep 2011 22:00:19 GMT

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.

Re: College essay on interest rates

Anonymous — Sun, 04 Sep 2011 00:08:28 GMT

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?

Re: College essay on interest rates

Anonymous — Sun, 04 Sep 2011 00:29:40 GMT

@Anonymous 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.

Re: College essay on interest rates

wmarat — Sun, 04 Sep 2011 02:11:12 GMT

@Anonymous 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"

Re: College essay on interest rates

Anonymous — Sun, 04 Sep 2011 14:32:25 GMT

I'll answer your questions in order:

1. I assume that MOST not ALL credit card companies use FICO. It doesn't matter which score they use but they do use a score to determine interest rates.

2. Must be a logical argument, this is a college essay. I have room for opinion in the first paragraph only.

3. I mentioned racial profiling because my first sentence (introduction) is supposed to grab the readers attention and like I said above, this is my only chance to stray from the facts. And here is what I meant by it, racial profiling involves judging someones character based on one piece of information (race) and any institution that uses a credit score as it's sole determining factor for extending credit (as many credit card issuers do) is also only using one piece of information to judge someones character.

Re: College essay on interest rates

Anonymous — Sun, 04 Sep 2011 14:35:56 GMT

I am only focusing on credit cards, not banks. A bank may actually pull your credit record and review it, a credit card issuer doesn't take that kind of time. In your post you wrote, "But I could accept that there is a market that is underserved of people whose scores aren't a true predictor of risk." This is an excellent argument for me to use. You could be rich and still have a lousy credit score! Thanks for the reply.

Re: College essay on interest rates

Anonymous — Sun, 04 Sep 2011 14:40:24 GMT

Some excellent points! You wrote, "The other point to consider is that a credit score is just a snapshot of someone's credit at one point in time" and I think that is an excellent argument. Your last sentence, according to my finance class, is only half correct though. If the credit inquiries are initiate by the consumer it will affect the credit rating but all those junk offers you receive in the mail for credit cards? They also checked your score (well, most of the time) but it has no effect on your score. I never did figure out how they knew the difference.

Re: College essay on interest rates

Anonymous — Sun, 04 Sep 2011 14:44:49 GMT

Unfortunately, I have little choice in the topic department. I was given six to choose from and no one else was picking this topic. I like a challenge, that's why I picked it.

I have seen the word utilization used in a couple of posts already but I do not know what it means. Could you give me a brief description, please?

And I would like to thank everyone for your replies. It has given me a lot to research and should make for a pretty good essay. Luckily, it only has to be 1000 words and I have probably written that much in this forum already!

Re: College essay on interest rates

Anonymous — Sun, 04 Sep 2011 14:52:09 GMT

Let me modify my reply to you. According to the limited topics that I was able to choose from, credit card companies use a credit score to determine interest rates. This is an English class, not finance, so I am going with the assumption that MOST credit card companies use credit score as the determining factor for interest rate. In reality, I only know that CC companies use a score to determine whether or not to give you a card. I am not sure how they determine interest. Haven't got that far in my research yet! Only in week two of this class, so I have seven more weeks to finish my research and write my paper.

Thanks for the reply!

Re: College essay on interest rates

Anonymous — Sun, 04 Sep 2011 15:01:55 GMT

I was unaware that credit scores were not an international thing. Thanks for the reply.

Re: College essay on interest rates

haulingthescoreup — Sun, 04 Sep 2011 16:09:50 GMT

Hi Duality, welcome to the forums!

It's possible (and very useful) to quote the post that you're replying to. When you hit "reply" to a specific post, and the text box opens up, you'll see a button above on the right that says "quote." Hit that, and the original post appears in your text box. Before you start to enter your reply, make sure that your cursor is out of the quoted area and back on the left-hand margin, either above or below the quote.

It sounds like you're getting some useful help, and so I'll only comment that most CCC's (credit card companies) use more than just a credit score of whatever type. They typically will also look at your internal history with that company --if you've ever "burned" them, for instance, and they'll look at your underlying credit report to see what created your score. For instance a 720 FICO score can mean someone with 6 years of history, one 30-day late four years ago, and very few balances reporting (= a good customer), or it can mean someone who had a 795 three days ago, and a collection just hit the report.

I realize that this is an assignment for an English class, not a finance class, but if only for your own future info, you should be aware of the above.

Re: College essay on interest rates

Anonymous — Sun, 04 Sep 2011 16:58:32 GMT

Duality - i think you misunderstood my last point.

When someone is shopping around for a mortgage or car loan, they often have their credit pulled mulitple times by different lenders, these hard pulls often get consolidated by CRAs so that they don't end up with a ton of hard pulls on their report just for trying to find the best financing deal.

When they are shpping around for credit cards, they might apply for cards with several different companies and see what they are approved for (different APR or product type) but not necessarily open up each account that they applied for. Each hard pull remains on that person's report and is factored into their score regardless of whether or not they open the accounts or not or were even approved.

The preapproved/prescreened offers that you receive in the mail come from that CRAs give to credit card/insurance companies. A CCC probably pays the CRA for a list of people who meet certain requirements (ex, credit score of 700 and no collection accounts). That's why they're not a guaranteed approval since other factors are often considered. Many people, like myself, don't want the constant junk mail and have opted out so whether they qualify or not,, they'll never receive those offers in the mail.

Re: College essay on interest rates

Walt_K — Sun, 04 Sep 2011 17:04:20 GMT

@Anonymous wrote:
Duality - i think you misunderstood my last point.

When someone is shopping around for a mortgage or car loan, they often have their credit pulled mulitple times by different lenders, these hard pulls often get consolidated by CRAs so that they don't end up with a ton of hard pulls on their report just for trying to find the best financing deal.

When they are shpping around for credit cards, they might apply for cards with several different companies and see what they are approved for (different APR or product type) but not necessarily open up each account that they applied for. Each hard pull remains on that person's report and is factored into their score regardless of whether or not they open the accounts or not or were even approved.

The preapproved/prescreened offers that you receive in the mail come from that CRAs give to credit card/insurance companies. A CCC probably pays the CRA for a list of people who meet certain requirements (ex, credit score of 700 and no collection accounts). That's why they're not a guaranteed approval since other factors are often considered. Many people, like myself, don't want the constant junk mail and have opted out so whether they qualify or not,, they'll never receive those offers in the mail.

Slight clarification. The inquiries are not consolidated. You still get all of the inquiries on your report. However, if they are coded properly, the FICO scoring algorithm treats them as a single inquiry. Anyone looking at the report would still see multiple inquiries. I'm pretty sure that is the way it works.

Re: College essay on interest rates

Jazzzy — Sun, 04 Sep 2011 17:13:26 GMT

@Anonymous 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!!!

Are you sure that using the example of racial profiling in airports is the way to go for comparison? I travel a lot, and in my opinion racial profiling in airports is avoided as much as possible. When there is an example of racial profiling these days, it makes headlines. I don't think it's happening as much as you think. I'm sure it did in the past, but it's being avoided today. I'm a 61-year-old Caucasian female...not even 4' 11" tall. I am very often the one chosen for body scanning. I'm about as far from the racial profile as you can get. Most of this is randon these days. Last time we flew overseas my husband was chosen randomly. If I read your opinion containing "racial profiling in airports," I would think you were out of touch with today's reality, and I would not give much weight to the rest of your arguments.

Just my opinion on your original premise....

As for the rest of your argument, credit scores are only one factor in setting interest rates. I believe income plays an important part. When you apply for a credit card, they ask for your income. I know you have to stick to the premise you chose, but I don't believe the original premise is totally accurate to begin with.