Do CC UW criteria change in different demographic areas?

[CreditCuriosity]

I appologize if this is in the wrong section, but appears to be as good as any other for this purpose.

Do you think big bank aka Chase/Citi/BofA/etc change their UW standards at all persay for someone that might live in San Francisco (Fairly wealthy) area and one that may live in Detroit (not as wealthy).  Just using these as example demographic cities.  Meaning scores and income must be higher if you live in San Francisco to get approved than say Detroit can get the same card approved with lower scores and/or income?   I have always wondered this and believe it to be somewhat true as FICO scores vary pretty greatly on the part of the country you live in along with age and income for some obvious reasons or at least obvious to me.  CC companies do have higher/lower default rates in various areas of the country and they obviously mine/analyze this data...  So Curious what others think.

I would like to hear other peoples thoughts on this subjects. 

[Anonymous]

I wonder if this would be legal? It sounds an awful lot like redlining. 

[CreditCuriosity]

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@Anonymous wrote:

I wonder if this would be legal? It sounds an awful lot like redlining. 

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Legal or not, lenders definitely profile whether they admit it or not.  It is unfortunate, but still remains true if you are known to live in a very transient city like Vegas is also a possible risk for a lender.   I agree this topic will probably get some debate.  I think they are more laxed in some areas due to income not being as high, etc.. Shall see what others weigh in on.  Sites like CK have their Fako's broken up by state etc, even though they are fake scores they clearly show huge differences in scores in various states/regions of the country.

[Anonymous]

I don't think they do this. They track many different things that change your internal scoring, but where you live is rarely something that proves you are a good or bad person to lend to. There are many areas in which there are both very rich and very poor people in very close proximity. Why wouldn't they just use income data about the person rather than make assumptions about the person just because they live somewhere? I bet the majority of difference in default rates between regions can be explained by income and other factors they already know about. I'd be interested to know whether stating you are a student could change their decisions. I don't think it would, but they love students and you can see how they would want to be locking someone in who will have a lot of expenses and likely has some support from their family, probably won't have a bankruptcy soon.

[CreditCuriosity]

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@Anonymous wrote:

I don't think they do this. They track many different things that change your internal scoring, but where you live is rarely something that proves you are a good or bad person to lend to. There are many areas in which there are both very rich and very poor people in very close proximity. Why wouldn't they just use income data about the person rather than make assumptions about the person just because they live somewhere? I bet the majority of difference in default rates between regions can be explained by income and other factors they already know about. I'd be interested to know whether stating you are a student could change their decisions. I don't think it would, but they love students and you can see how they would want to be locking someone in who will have a lot of expenses and likely has some support from their family, probably won't have a bankruptcy soon.

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Valid points, but most banks don't ask for proof of income, thus fudging on the income part for some people.  I agree you can have a very affluent area then a few blocks away a run-down part of town.  I am sure they track by zip codes within a city as well the income/default rate for given zip codes, not just at a regional level.. Whether this has a bearing on approval/uw standards, that is part of the question.  With that said my Grandma grew up as a farmer and the only grandparent I have left is pretty much poor, but has perfect credit and has a few great CC, so alot of assumptions obviously athough she lives in a tiny farm town that everyone knows everyone and probably no one has bad credit there?

[Anonymous]

It's definitely something they could do, but at the neighborhood level that's pretty clearly discrimination. Any gains they make by slightly lowering their risk could be easily eliminated by a class action lawsuit. Income is definitely easy to lie about. I wonder how many do. I also notice that when I am in lower income areas, many rely on debit cards. That might be because they can't get a card, or they could just want to use something where they're not able to create large debts. Also, even within a ZIP code, there can be great variation. Some ZIP codes are specific to a neighborhood that's fairly homogenous, others cover many neighborhoods and types of houses. Where I grew up in Alaska, we had mostly the same type of families living in our ZIP code, which would work if they were profiling by ZIP. Where I am in Brooklyn now, we have over 50,000 people in my ZIP code, spread across several neighborhoods. Where my parents live now in Maine, there are very few people in our ZIP code and there is a huge variation in wealth. There's a ZIP in Texas with over 100,000 people. So where you live really isn't everything for determining these things.

[CreditCuriosity]

@IK_ good insight and thoughts.. 

[FinStar]

Just keep a few items in mind.  Lenders have extensive information from collective data-mining sources to determine specific UW criteria such as tiered or risk-based pricing, default rates, etc.

You'd be suprised what most major lenders have at their fingertips and the amazing nano-second processing speed using such algorithms to make a lending decision.  That being said, consider the aggregate information they obtain from census tract data, credit bureaus, lexisnexis, public records, the work number, etc. to taylor something specific with such granularity that "zip code" is not really that relevant when it comes to UW criteria per se.  While lenders are regulated by various federal agencies they also have proprietary information (i.e. algorithms) which are never shared with the public (let alone regulators) as long as they abide by the CRA, FHA and ECOA standards, including the Card Act reform (for CCs), especially in underserved goegraphical areas.

[Anonymous]

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@Anonymous wrote:

I wonder if this would be legal? It sounds an awful lot like redlining. 

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Reverse redlining as the original post read. Think of it like affirmative action for credit.

[CreditCuriosity]

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@FinStar wrote:

Just keep a few items in mind.  Lenders have extensive information from collective data-mining sources to determine specific UW criteria such as tiered or risk-based pricing, default rates, etc.

You'd be suprised what most major lenders have at their fingertips and the amazing nano-second processing speed using such algorithms to make a lending decision.  That being said, consider the aggregate information they obtain from census tract data, credit bureaus, lexisnexis, public records, the work number, etc. to taylor something specific with such granularity that "zip code" is not really that relevant when it comes to UW criteria per se.  While lenders are regulated by various federal agencies they also have proprietary information (i.e. algorithms) which are never shared with the public (let alone regulators) as long as they abide by the CRA, FHA and ECOA standards, including the Card Act reform (for CCs), especially in underserved goegraphical areas.

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So you are kind of agreeing what I am getting from your post that they might have different UW standards for different demographic areas?  Correct me if I am taking what you said out of context..  I work with data warehouses, analytics and dashboarding and reporting for a living and know how powerful of tools these are and how you can slice the data in such ways that it is amazing what it can show you, especially with trends..  I agree alot of this stuff they don't have to share with such agencies.

Still wonder if they loosen their UW criteria to get into new geographical areas that are known(just pulling a number of the air) to have say a 30 lower average Fico scores on average due to whatever reason.