Saying "Wasted" On Facebook Can Affect Your Credit Score (ajc.com)

JustAnotherOldGuy writes: According to a recent report by the Financial Times (paywalled), some of the top credit rating companies are now using people's social media accounts to assess their ability to repay debt. "If you look at how many times a person says 'wasted' in their profile, it has some value in predicting whether they're going to repay their debt," Will Lansing, chief executive at credit rating company FICO, told the Financial Times. "It's not much, but it's more than zero." According to the Financial Times, both FICO and TransUnion have had to find "alternative ways" to assess people who don't have a traditional credit profile — including people who haven't borrowed enough to give creditors an idea of what kind of risk they pose.

Comments

I have no debt and a hefty savings account

[Anonymous Coward]

According to lenders this makes me a credit risk.

Re:I have no debt and a hefty savings account

[Anonymous Coward]

This entirely.

The credit systems is quite screwed up. I worked a shitty McJob full time during summer and part time during school (except for the last year where I decided to focus on my studies). Managed to be one of the very few people with a degree and no debt without Mom and Dad paying for it.. and was proud of this. Got a decent job, was still living at home so built up some decent savings, payed for most stuff with cash or debit. Eventually decided to get a credit card, and yup, had to deposit a chunk of cash that I couldn't touch for 6 months before they'd give me one. This would seem entirely reasonable to me, except by this point my sister was in university.. student loans (in her defense, her program was many times more expensive than mine..), and no income (she worked summers but not during the school year).. and banks (including mine, RBC) were practically throwing pre-approvals at her.

Fast forward about 10 years, I now own a house, have a mortgage, a line of credit, credit cards.. basically if I added up all the credit I have available to me it would be multiple times what I make in a year) .. and I get calls all the time from the big banks trying to give me even more.

There was a good(ish) documentary a few years called Maxed out on Debt... if you ignore the annoying drama stuff in the middle, there's some good frank interviews that explain a lot of it. They _want_ people who arn't completely broke but can't afford the credit so they'll keep making minimum payments forever. They want to load you down with more credit than you can afford so you get on that treadmill.

I'm kinda on the fence with regards to how I feel about this. One one hand, the banks are doing some shady stuff and directly trying to set people up for financial disaster for their own benefit. On the other hand, they arn't forcing people to use their credit cards beyond their means. Personally I've managed to never pay interest on any of mine. I guess it's gotta be a middle ground. Much as I hate nanny-state type stuff, I feel like this is one area we may need the government to come in and save people from themselves by restricting how much credit a person can hold based on income or something.

Re:I have no debt and a hefty savings account

[ShanghaiBill]

According to lenders this makes me a credit risk.

Because you are. People with no debt are less likely to pay off debt once credit is extended, than someone with a track record of making regular payments on an existing debt. Credit score criteria are not just randomly pulled out of a hat. They are based on hard data.

Re:I have no debt and a hefty savings account

[Anonymous Coward]

Please refer to evidence for that. The US is one of the few countries having a credit scoring based on previous loans. Other countries have different ways of validating your ability to pay back so the credit score rating method might be worth to reconsider.

(Posting as AC due to mod points)

Re:I have no debt and a hefty savings account

[Anrego]

For all that people rail on about how stupid and illogical the credit score system is, it does generally seem to work in most cases. People who are financially responsible do tend to end up with good credit scores, and those who arn't tend to have bad ones.

The only area it's weak in is people who manage to get into their adult life without needing credit, but then if you've never had a car loan, a credit card, or any kind of debt, even if it's because you're financially well off, it's still probably a bad idea to hand you a 300k mortgage.

And building credit isn't hard. You don't have to pay interest, just get a no fee credit card, use it for some of your purchases and pay it off every month. Most banks will give you a credit card if you leave a deposit covering the limit with them for a certain amount of time, or you can get someone to co-sign (usually a parent).

Re:I have no debt and a hefty savings account

[Anonymous Coward]

Canada too!

Made it out of school with no debt, had to get parents to co-sign for my car loan despite having a decent full time job for at that point 2 years because I had no established credit.

Re:I have no debt and a hefty savings account

[Anonymous Coward]

I used to do phone support for Capital One credit card and they determined that if the first transaction you make with your card is cash, it's likely you will max the card and not pay it back.

What happens is you get your new card, you go to the ATM, get declined, phone in then CS tells you it's for 'security reasons' to 'protect you from fraud' then asked you to fax in 3 or 4 pieces of ID to 'verify yourself'. After that, they tell you the information was illegible and that they can't reinstate your card.

I can understand them declining people who are a likely risk but literally telling them a bold faced lie is what kind of surprised me. They used to refer to Capital One as "Cap One" for short, I'm not sure if they caught how appropriate "Capone" was to describe the way they do business.

Re:I have no debt and a hefty savings account

[easyTree]

They _want_ people who arn't completely broke but can't afford the credit so they'll keep making minimum payments forever. They want to load you down with more credit than you can afford so you get on that treadmill.

I'm kinda on the fence with regards to how I feel about this. One one hand, the banks are doing some shady stuff and directly trying to set people up for financial disaster for their own benefit.

Yep, every dollar of debt you take puts $10 back into the sytem which they can then lend out to ten more suckers. Gotta love it.

Re:I have no debt and a hefty savings account

[Aristos Mazer]

> On the other hand, they arn't forcing people to use their credit cards beyond their means.

If you look at a lot of the ads that they send us, those ads suggest strongly that they're making the offer because it *is* within your means. These people with advanced math degrees say you're a great person to get this credit... it's easy to start thinking they understand something about your finances that you've missed if you don't really grasp the terms "compound interest" and "APR" etc. I think the sales pitch often crosses the line into dishonesty. Not always, but frequently.

Re:I have no debt and a hefty savings account

[ArylAkamov]

The only area it's weak in is people who manage to get into their adult life without needing credit, but then if you've never had a car loan, a credit card, or any kind of debt, even if it's because you're financially well off, it's still probably a bad idea to hand you a 300k mortgage.

And building credit isn't hard. You don't have to pay interest, just get a no fee credit card, use it for some of your purchases and pay it off every month. Most banks will give you a credit card if you leave a deposit covering the limit with them for a certain amount of time, or you can get someone to co-sign (usually a parent).

Exactly what I'm going through now. Up until a year ago I paid for everything with cash or debit but I get the feeling it'll be awhile before I can pay for a house in full. My idea of "If I can't pay for it right now, I don't need it" kinda screwed me for awhile.

Re:I have no debt and a hefty savings account

[Nutria]

Much as I hate nanny-state type stuff, I feel like this is one area we may need the government to come in and save people from themselves

So you want people to share their income and net worth with either the banks or the federal government (since how else would "they" determine whether or not they can offer you credit).

Re:I have no debt and a hefty savings account

[Nutria]

they're making the offer because it *is* within your means...

to pay the monthly minimum. Which is exactly what AC wrote.

Re:I have no debt and a hefty savings account

[Hognoxious]

It's not necessarily that you're a bad risk, it could be that you have low profit potential because you'll probably pay it off in time, not roll it over, etc.

Somebody's bonus depends on you getting stung for fees & extra interest, you heartless bastard!

Re:I have no debt and a hefty savings account

[Nutria]

and pay it off every month

They ding you (not much) for that.

Every so often, even when I have the money, I take the bank up on a balance transfer offer. The trick is to pay it off just when the 0% incentive expires. (A web bill pay service makes it easy.)

That way, you remind them that you can pay your CC bills, while simultaneously not having to pay the 12+% APR.

Re: I have no debt and a hefty savings account

[Anonymous Coward]

I'd say keep the "if I don't have the money" mindset, just switch to using a CC. It's usually safer than debit anyway, and if you pay the balance it's free.

You can stand on principal of course, but it'll definitely make getting a mortgage hard. They usually want 3 years established history with 2 credit sources. You can get away with less, but you probably won't get the prime rate, even with a sizable down payment.

Re:I have no debt and a hefty savings account

[Nutria]

low profit potential because you'll probably pay it off in time

They also make money in transaction fees from vendors.

Re:I have no debt and a hefty savings account

[chipschap]

I too have 800+ credit scores, very good savings, and a paid-off home. Therein lies the problem. I don't have any debt any more, and while I use credit cards for nearly everything, I never carry a balance beyond the payment due dates. I've been retired for a while and have a steady pension income that is quite adequate.

So I asked for an increase in my credit card limit, and was turned down, with the EXPLICIT statement, "You don't have enough debt." Not "your credit isn't good enough"--- they as much as said my credit was just fine.

In other words they see that in their industry I am, and will remain, what is called a "deadbeat." This does not mean a non-payer, this means someone who PAYS and doesn't carry balances, thereby denying the banks the opportunity to collect interest at extortionate interest rates.

Is there something wrong with this whole system?

Re:I have no debt and a hefty savings account

[mrbester]

People already share their income with the government. It's called your tax return.

Re:I have no debt and a hefty savings account

[Anrego]

Yup, and having just gotten a mortgage this year, my bank required:
- a list of my current expenses / bills
- my income for the last 2 years
- proof and history going back 6 months of the money I was using for a down payment

Re:I have no debt and a hefty savings account

[Anrego]

Yup. In Canada (at least with the bank I dealt with) it was 2 sources for 3 years. In my case I had a 3 year car loan (paid off) plus my credit card so I was good. No idea if having 2 credit cards would do it or not.

Re:I have no debt and a hefty savings account

[Nutria]

with the EXPLICIT statement, "You don't have enough debt."

Maybe what they really mean is "our actuaries have discovered that people who don't carry any debt but suddenly ask for an increase are statistically more likely to skip out".

Is there something wrong with this whole system?

Depends on what the purpose of "the whole system" is.

Re:I have no debt and a hefty savings account

[havana9]

It's not necessarily that you're a bad risk, it could be that you have low profit potential because you'll probably pay it off in time, not roll it over, etc.

I had both a debit card (for ATM and POS) and a Visa that was a charge card only, ie. I had to repay in full every month, and if no money was present on the associated then the card debt was repayed going overdraft.
I have also a securities account with the bank, so they know i have some of their and other corportation bonds, so I suppose they know I could stay easily out of debt.
A day I lost the old credit card, so I asked for a new one. The old credit card was of course disabled so a new card was given to me because the older card offer was withdrawn. That new card is different because has a contactless chip and because was a charge card that could easily modified to be a revolving credit card.

Re:I have no debt and a hefty savings account

[Anonymous Coward]

Made it out of school with no debt, had to get parents to co-sign for my car loan despite having a decent full time job for at that point 2 years because I had no established credit.

You should have gotten a credit card while in school. Banks love students.

Just *having* the credit card builds your credit history, you don't have to use the card. (aside from once every 6 months or so to keep the account active).

Re:I have no debt and a hefty savings account

[Racemaniac]

Because saving money and paying off credit is basically the same thing: making sure you have left over money at the end of the month to achieve what you want/need to achieve
I'm from europe, and i can't even imagine what i hear about the american system. I got a very good deal on my mortgage even without having ever had any line of credit. Here they want to know you've got a steady job.
Why would making debt give you a good credit rating? Not needing it and having saved up money, isn't that like the best financial situation you can be in?? Why would they be good in paying off credit? because they can manage their money and have years of managing it very well without ever needing debt, so why would they start not paying now??

I think the truth is more likely closer to what others mention here: why would banks give credit to people who hardly need it, and will never ever be late in paying or transfer balances to the next month? that's where all their money comes from, sounds like a terrible customer to do business with!

Re:I have no debt and a hefty savings account

[Solandri]

In other words they see that in their industry I am, and will remain, what is called a "deadbeat." This does not mean a non-payer, this means someone who PAYS and doesn't carry balances, thereby denying the banks the opportunity to collect interest at extortionate interest rates.

Is there something wrong with this whole system?

There is nothing wrong with the system. You're assuming the point of the bank (or credit card) is to offer you a service. It's not. The bank/credit card is lending money for the purpose of making more money (collecting interest). Nothing more. If they can't collect as much interest from you, in their eyes that makes you a worse investment than someone who carries a balance and pays interest.

If you have substantial savings and your financial habits are good enough to maintain a 800+ credit score, then what's the problem? You don't need to borrow money. Use your savings.

Or alternately, do what the banks and credit cards do - leverage your savings to generate income. Having zero debt is actually not the optimal fiscal situation. It's the safest, but it's not optimal. Basically by putting your money in a savings account, you're giving the bank a cheap loan, and the bank is leveraging your money to make more money (by doing things like lending it out to people who carry balances on their credit cards). If you have a savings, no debt, and excellent credit, you should be able to borrow money very cheaply, and invest it in something which gives a greater return than the interest you'll have to pay, and certainly a greater return than the interest on a savings account.

Re:I have no debt and a hefty savings account

[TheRaven64]

My bank doesn't appear to even share my income with themselves. When I applied for a mortgage, one of the things that I had to prove was that I'd been paying my rent regularly for the last three months (yes, they really did only care about three months). I thought this would be easy: I'd been paying by standing order, from an account with them, so they could easily look at when the standing order was set up, and the fact that it had been paid every month for the last few years. Apparently they couldn't - I had to take three months of bank statements into the branch. It was then that I understood why subprime mortgages had been such an issue.

Re:I have no debt and a hefty savings account

[TheRaven64]

Because saving money and paying off credit is basically the same thing: making sure you have left over money at the end of the month to achieve what you want/need to achieve

Nope, regular savings and paying off credit are the same things. This is why having a savings account that has a regular fixed payment increases your credit score, but one that you just dump money into periodically does not.

I think the truth is more likely closer to what others mention here: why would banks give credit to people who hardly need it, and will never ever be late in paying or transfer balances to the next month? that's where all their money comes from, sounds like a terrible customer to do business with!

It depends a lot on the kind of credit. For personal loans, the interest rates are so high that you want people who can pay it back, because you're making 10-20% in a year on the total loan. For mortgages, the cost of repossessing a house and then selling it can be very high, so you really want people who are able to pay back the loan. For credit cards, you want a mixture of people, some who will have a high throughput and rack up a load of transaction fees from the merchant and who can justify to the merchants that they'd lose business if they didn't accept cards (I put about £20K on my credit card each year, mostly business expenses, and get very good customer service - everything I've complained about has been resolved immediately and followed up with a goodwill payment to apologise), and some who will serve as long-term income sources by running up a smallish debt that they can't pay and effectively paying the interest in perpetuity.

Re:I have no debt and a hefty savings account

[TheRaven64]

You don't have to pay interest, just get a no fee credit card, use it for some of your purchases and pay it off every month

People who don't do this and are proud of not using credit seem to be indicating that they're pretty poor at financial planning to me. I got a credit card as soon as I was legally able to (which had a very low credit limit, as I was a student with no real income). By the time I was earning, it had a big enough limit to cover all of my monthly expenses (though, unfortunately, I couldn't pay rent with it) and 1% cash back. By using the credit card, I get to have one more month's worth of salary in my savings account at any given time and I get 1% back on everything that I spend. I don't understand why anyone would prefer to use a debit card, which has neither of these advantages, but if I were lending money I'd look at the people who did and think that they're not so good at understanding personal finance.

Re:I have no debt and a hefty savings account

[Nutria]

The IRS doesn't share it with anyone else, though. And the IRS doesn't know your net worth.

Remembering the OPM hacking debacle, do you really want bureaucrats and the Dept. Of Commerce to have all the gory details on everyone's net worth and income?

(How outraged were you by the Manning and Snowden revelations of internal spying? This would be worse.)

Re:I have no debt and a hefty savings account

[sociocapitalist]

T

I'm kinda on the fence with regards to how I feel about this. One one hand, the banks are doing some shady stuff and directly trying to set people up for financial disaster for their own benefit. On the other hand, they arn't forcing people to use their credit cards beyond their means. Personally I've managed to never pay interest on any of mine. I guess it's gotta be a middle ground. Much as I hate nanny-state type stuff, I feel like this is one area we may need the government to come in and save people from themselves by restricting how much credit a person can hold based on income or something.

https://en.wikipedia.org/wiki/...

Shady indeed. Missing a single payment (due to a bank clerk error, not mine) and Chase upped my interest rate from almost nothing to 30%...which is evidently illegal in NY, if this site is accurate http://www.lectlaw.com/files/b... and yet they do it anyway.

I paid the fee for missing a payment and closed the account so for me impact was limited but for people caught in the trap 30% is, to say the least, abusive.

Although my understanding is imperfect as I'm a transplant to this country, my understanding of the way it works here in France is that banks, et. al. can lend you as much as they choose to but they can't collect debt that you can't pay if they've loaned you more than you can pay back with 30% of your income. End result is that the banks balk at lending that exceeds that 30% soft limit.

Re:I have no debt and a hefty savings account

[geggo98]

I'm kinda on the fence with regards to how I feel about this. One one hand, the banks are doing some shady stuff and directly trying to set people up for financial disaster for their own benefit. On the other hand, they arn't forcing people to use their credit cards beyond their means. Personally I've managed to never pay interest on any of mine. I guess it's gotta be a middle ground. Much as I hate nanny-state type stuff, I feel like this is one area we may need the government to come in and save people from themselves by restricting how much credit a person can hold based on income or something.

Well, personal responsibility is very important. But the human nature has its limits. For example while you are personally responsible what you read and what not, spam mails are still not acceptable. And while everyone is personally responsible for not giving away personal information, fishing is beyond these limits.

In my opinion it's similar with credits: Advertising is OK up to a certain limit. And everyone is personally responsible for fact checking. But there is a certain border, and the banks are at least scratching on this border and sometimes even crossing it.

For us as a society it would probably be beneficial to regulate the banks here. One possibility could be to make certain contracts unenforceable, when there the quality and volume of the advertisement goes beyond certain limits. Then the market would regulate that problem very quickly.

Re:I have no debt and a hefty savings account

[TheDarkMaster]

"Only" ten for one? Can be a lot more.

Re:I have no debt and a hefty savings account

[TheDarkMaster]

Only 20% in a year? On Brazil the "Banco do Brasil" (Bank of Brazil) the interest rate on a year is more than 350% (link), and all other banks are engaged in similar rates (or worse). Yeah, I live in a shithole...

Re:I have no debt and a hefty savings account

[mwvdlee]

Credit cards aren't a system to make payments easier, they are a system to make getting credit easier.
If you're only using them for payments, they're not making money off of you (or atleast not a lot).
Getting a bigger credit limit only to use it for larger payments just means you cost them more.

Re:I have no debt and a hefty savings account

[Anonymous Coward]

"Is there something wrong with this whole system?"

The fundamental problem is that the core product traded on the financial market is debt, so the big players on the financial market have a direct interest in creating more debt, because that means there is more to trade and thus more money to be made.

Re:I have no debt and a hefty savings account

[drinkypoo]

I feel like this is one area we may need the government to come in and save people from themselves by restricting how much credit a person can hold based on income or something.

Whenever you say "There ought to be a law to stop that", if it's not for the purpose of preventing imminent harm, you're probably wrong. In this case, there's one simple trick which would solve this problem for everyone, for ever. Make debt the responsibility of the lender. That is the only way to stop lenders from preying on people who can't really afford debt, and to get them to only extend credit to people who can afford to pay them back. School ought to be free; if you took out the worthless executives, it would cost a whole hell of a lot less to provide. They have only become so powerful (and well-paid)
  because of the influence of unions. You can argue about the utility of unions all day, but education is one place where it provably has harmful effects.

Re:I have no debt and a hefty savings account

[cardpuncher]

>They are based on hard data

They are based on hard aggregate data, not individual patterns of behaviour.

People with no history of debt are less likely to pay it off because on average people with no history of debt have been refused credit because they have no money.

Now, you may ask why someone with a healthy savings account might need credit. In theory, they probably don't, but the whole payments system now revolves around credit. Cash is a either a financial disadvantage if you're trying to book a hotel or hire car (you'll be expected to provide a deposit up front against unexpected charges) or a cause for suspicion if you're carrying out a high-value transaction, such as buying a car, or even simply booking an airline ticket. People who are financially atypical but perfectly creditworthy in these scenarios are significantly disadvantaged by the way credit scoring works. There used to be human involvement that could override the rules in these circumstances - but you have to have very high net wealth before you're afforded that luxury these days.

Re:I have no debt and a hefty savings account

[rockout]

You're not looking hard enough for a new credit card company. My credit union offers a doubling of my max limit every 6 months, if I want it, and I've taken advantage of it until I'm at a max that I feel is more than enough. (it's a ridiculous number now) I too pay off every month, and my score is just barely over 700.

The system is fine. If your bank isn't offering you the service you want, go to one that does. Credit unions are a good place to start.

Re:I have no debt and a hefty savings account

[jafiwam]

I'm pretty sure that what they actually mean is that someone who doesn't roll over debt won't "pay back" the debt in the form of interest without actually getting rid of the debt. If as a bank you've made back the principal and more, then you can easily extend the limit a little further. You can literally not fail to collect what has already been paid back. In that position you want to give them the option to go into more debt instead of reducing their debt to be able to use the card again. On the other hand, why would you increase the credit limit of someone who never gives you more than you gave them in the first place?

I have heard of people having some luck saying "yea I pay it all off, but I want to, and can't make, big purchases with your card. I am going somewhere else if you don't raise the limit."

That seems to work.

Though, if someone can and does pay the card off, why do they need a bigger limit in the first place?

Re:I have no debt and a hefty savings account

[swb]

Lenders are the clients of the credit reporting system, you are merely the product. Lenders make more money if they can charge you a higher interest rate.

Therefore, credit reporting agencies have a vested interest in biasing everyone's credit risk upwards because it makes *their* scoring system more profitable.

I have no doubt that banks internally rank the loan profitability of all the credit reporting agencies. If banks analyze their loan data by credit reporting agency used and agency A and B both have the same default rate, but B biases all credit reports to be slightly more negative, the banks will see loans made with agency B scores as more profitable than A scores.

Now the bank will funnel more scores through B than A, even though A is just as safe from a risk perspective, it's less profitable. This works even if they have a policy of querying all agencies for every loan, they will chose the credit "risk" that makes them the most money.

This is basically a tax on every borrower and there's little means to escape it, since all banks use the same agencies and have the same motivation.

The credit reporting agencies bias there data against borrowers through intentionally sloppy record keeping -- assuming negative data to be true and requiring burdensome and difficult steps to obtain and challenge bad data.

The only way to fix this is through more regulation. Greater transparency -- you have to show me ALL the data you use to compile my score, not some filtered subset. The credit score has to be a number that can be explained and understood based on the data -- no "proprietary" scoring formulas whose calculations are a trade secret and only explained under NDA. If I challenge an item, you have to remove it unless you can provide documentary evidence in 30 days -- not just some EDI data in a database.

Re:I have no debt and a hefty savings account

[MitchDev]

"Is there something wrong with this whole system?"

Considering the laws are bought and paid for by the same people who are raping Americans with this stuff, yes, there is something SEVERELY wrong with the system. Corporations are NOT people, that SC decision was a HUGE mistake

Re:I have no debt and a hefty savings account

[wienerschnizzel]

but then if you've never had a car loan, a credit card, or any kind of debt, even if it's because you're financially well off, it's still probably a bad idea to hand you a 300k mortgage.

I still don't quite see the connection. How is the situation above any different from a person who kept paying off 2 digit monthly ballances off of a credit card for the last two years? Why should you trust that one with 300k? look at it the other way around - what are the most common traits for people who declared bankrupcy? Large outstanding debts, little savings, no safety nets (i.e. disability insurance or other applicable insurances), unstable income etc.

These are BTW things that European banks look into before providing a mortgage and the personal mortgage market has been fine in EU for the most part (countries like Spain mostly had problems with large construction projects failing).

Re:I have no debt and a hefty savings account

[jabuzz]

There is no reason to wait till your statement. You can go an pay money in during the middle of the month if you want. It will be credited to your account immediately. Also if you want to but a bicycle for $1100 and your credit limit is $1000 then just go an pay $200 into the account *BEFORE* you buy the bike, that way your account won't exceed the credit limit. I have used that method in the past to buy items beyond my credit limit when I was a student, specifically a PC.

My experience is that your credit limit gets raised if you spend a lot of money on your credit card (at least here in the UK). That said my current limit is some stupid multiple of my monthly income and it is many years since I have been anywhere near the limit.

Re:I have no debt and a hefty savings account

[hattig]

They _want_ people who arn't completely broke but can't afford the credit so they'll keep making minimum payments forever.

Of course. It comes down to affordability, and they want people to max out their credit to the point where they can barely make the minimum payments. I bet they call this a "sweet spot of consumer debt".

For example, once you have a bunch of credit card debt, you will realise at some point that the minimum payments are weighing you down, and you will consider maybe getting a long-term loan to consolidate the debt to make things more affordable. E.g., 30K of credit card debt might have a minimum repayment of 700 per month, a 30K 10 year loan at 10% could reduce that to 400 per month (don't worry about the total repayable here, this is about month-to-month affordability). You'd be 300 per month better off, you could use that to clear other commitments.

However, you will not be able to get the loan, because they take your existing credit commitments (the ones you want to pay off) into account to see if you can afford it. I.e., "Can you afford X (700) + Y (400)" each month, when the reality is you would only be paying Y. This is all baked into the credit assessment system, it's all based on affordability (and not the amount of debt you have already). And they don't trust you to not blow the Y on hookers and gaming PCs instead of clearing X, yet they will not offer a service to directly pay off the consolidated debt themselves. If you're at your affordability limit at 700, there's no way you can afford 1100, so they fail you, consistently.

So it's a multi-year game to get out of a bad debt situation. You need to get any type of loan, over a long term, to reduce the monthly payments as I gave an example of above. But your low credit score means you get high rates. Regardless, once you have it and clear some credit card debt (settle the highest rate accounts in order, preferably), it theoretically increases your credit score because you can technically afford more debt repayments each month (!). Of course, you should use the improved score to get a lower-rate loan to pay off the first loan and any other credit card debt you have still. This takes a long time of juggling, and 0% offer credit cards.

On the other hand, they arn't forcing people to use their credit cards beyond their means. Personally I've managed to never pay interest on any of mine.

So yeah, a good lesson is to not get into debt in the first place, and never have to learn the above. But that doesn't happen all the time - debt can happen for any reason that's not necessarily the fault of the debtor (e.g., in the US - medical bills). So you max out three credit cards, and then you're in the shit, even if you have assets, a good wage, etc. And the system does feel like it's set up like a Sarlac Pit - easy to fall into, hard to get out.

Other rules: always pay secured debt (set the payment date to your wage payment date if possible) before unsecured debt. Always pay the highest rate debt off first, if you have to choose. Be proactive when you see a problem developing, sort it out before you hit the affordability ceiling detailed above. Any step to reducing monthly outlay is better than sitting worrying about whether or not to accept that loan offer that you feel is at a rather high rate (but don't accept one with poor early repayment penalties) but would still reduce your monthly outgoings significantly.

If you'll be in monetary pain for a year, noodles and pasta and rice all the time is a reasonable penalty for the short period of time. If you'll be in monetary pain for five years, etc, then plan in some contingency for regular fun and nice meals, drinks, etc.

Re:I have no debt and a hefty savings account

[Xyrus]

Exactly. Credit scores are based on your track record of managing your credit. If you've never had credit (a credit card, a loan, etc.) then you have no credit score.

Lenders treat someone with no credit history the same way an employer treats an employee that has no job experience. You're not going to get an 800+ credit score just because you have and job and pay for everything up front, just like you're not going to start out as VP of operations fresh out of school.

Re:I have no debt and a hefty savings account

[parkinglot777]

He uses credit cards to pay for things, because it's convenient and safer than carrying lots of cash. But by the nature of the credit card, this can only be done up to the credit limit. Even if he has the money to buy all he wants, the credit card limits the amount he can conveniently spend until he repays the balance the next month.

Even though your statement is true, it is still doubtful. The reason is that a person with good credit rating normally has $10k or $15k credit limit on a credit card (2 of mine are at $15k). Increasing credit limit in a credit card is usually a long term. Isn't it suspicious when someone needs to have a limit to spend over $10k or even $15k a month if the one is not a known millionaire or billionaire? And if the person is a known millionaire/billionaire, the person would have an unlimited credit limit already. Also, what good would it be for an investor/bank to loan you money and you pay the money back in full every time without interests? That's why there is no reason for an investor/bank to increase the credit limit.

If the person really needs that convenient amount of credit to spend and has good credit, getting another card should not be an issue for the person. The argument about getting another card would lose the benefit of using the current card is arguably a reason. If the person wants to have an extra credit limit for a peace of mine or a bit more lee way for spending, then it indicates that the person may go above the limit once in a long while; thus, no substantial gain in benefits compared to using another card for it.

Re:I have no debt and a hefty savings account

[KingOfBLASH]

Actually this makes sense if you think it through.

One of the key indicators lenders are looking for is a change in your financial situation, which they use your behavior as a proxy.

If you are routinely paying off all your cards, and suddenly you want to spend $100k, it's fishy because it hints at something going on.

Maybe a sudden medical diagnosis will push you into bankruptcy.
Maybe a lay off will mean you'll borrow as much as possible before missing payments and going into bankruptcy
Maybe you just want to buy something expensive over a few months, and are not a credit risk.

The point is the banks can't know, so they may make the choice of not taking a chance (because someone who suddenly takes on debt could have heads or tails kinds of prospects)

Re:I have no debt and a hefty savings account

[houghi]

The way you build a credit score in Belgium is to live in Belgium.

The rest is comparing incoming and outgoing monies.

Having extra cards will lower your score. How does this work?

Say you have an income of 1500 netto a month. Obviously you need to give proof of that.You pay rent of 500 a month. Deduction of living of e.g. 250 a month. (not sure what the numbers are). That leaves 750 that you could spend on paying back credit.

You buy a car on credit and you pay back 500 a month for that, that means you have 250 left for payment of 1 or more other credits. As you need to pay say 5% at least of the open amount (this will differ, again just an example) you could get another credit of 250x20=5000 If you only need to pay back 2.5% per month, you can get a credit of 10.000.

If you do those with one or two or 20 credits does not matter.

Each time you ask for a new credit or a change in credit (or loan) it will be recalculated again as things might have changed.

Sometimes it will be refused because you are blacklisted. Sometimes you will be refused for whatever reason. If, however, they accept you and it was clear you should not have gotten that credit or loan, you DO NOT have to PAY BACK anyting. All is at the loss of the credit provider.

They will try, obviously, but you will not need to pay back. Fraud is obviously a different matter.

So: steady income. No credits or loans. Low expenditure. Great!
Yes; a house does count as something. So there are differences if you rent, have a morgage (how many years into it?) or morgage free.

When does it go wrong? With people who are bad with money and if the situation changes radically over a longer period of time.

There are many rules and regulations that are mainly in place to protect the credit taker and even discourage the people from taking credit (e.g. nulstelling).

Re:I have no debt and a hefty savings account

[jittles]

You should have gotten a credit card while you were in college. For some reason, banks are unusually generous with college students. You can get access to credit you could not otherwise get. Once you're done with school they evaluate you just the same as any other working class person.

Re:I have no debt and a hefty savings account

[jittles]

The credit card companies cannot afford for everyone to retain a balance on their cards. They still get money for every dollar you spend. There was some other reason for this and perhaps it was your age / retirement status. They obviously cannot use that as an excuse to decline you, so they use one that cannot be considered discrimination.

Re:I have no debt and a hefty savings account

[Nutria]

Getting a bigger credit limit only to use it for larger payments just means you cost them more.

I can't figure out why you'd cost them more. Please clarify.

Re:I have no debt and a hefty savings account

[NostalgiaForInfinity]

No, it just makes you a likely poor customer: if you pay off your cards right away and pay cash for a lot of your purchases, card companies are not going to be making much money on you, and they aren't interested in doing business with you. Credit scores are just one factor used by lenders; you'd probably easily get a mortgage.

Re:I have no debt and a hefty savings account

[tepples]

Also, what good would it be for an investor/bank to loan you money and you pay the money back in full every time without interests?

The Wikipedia article Interchange fee should answer some of your questions. If there's anything you don't understand, let me know and I'll work to get it cleared up.

Re:I have no debt and a hefty savings account

[NostalgiaForInfinity]

This does not mean a non-payer, this means someone who PAYS and doesn't carry balances, thereby denying the banks the opportunity to collect interest at extortionate interest rates. Is there something wrong with this whole system?

I don't see what you think is "wrong" with this. Banks will only do business with you if the expected income they get from you exceeds the money people of your type will cost them on average. Giving you a credit card places exposes them risk, not just of you not repaying, but also of your card being used for fraud, so if you don't make them much money, why should they do business with you? They aren't a charity.

Why don't you get a prepaid card?

Re:I have no debt and a hefty savings account

[StikyPad]

Your assets don't make you a risk; your (presumed) lack of history makes you a risk. Plenty of very wealthy people have filed for bankruptcy protection, presumably people who could have repaid their debts, at a high cost to their standard of living. If you lost your job, would you deplete your savings to repay creditors, or would you try to hold on to what you have? People tend to be loss averse, and hold on to what they have. So whether you *can* repay is an important consideration, but it's still just a prerequisite for whether you *will* repay.

Re:I have no debt and a hefty savings account

[NostalgiaForInfinity]

Even if he has the money to buy all he wants, the credit card limits the amount he can conveniently spend until he repays the balance the next month.

You can repay your current balance whenever you want to.

And you don't need to use a credit card to use the VISA / Mastercard payment systems, you can use a debit card.

Finally, so he is inconvenienced. So what? The world does not revolve around making life convenient for him (or for me or for anybody else).

Re:I have no debt and a hefty savings account

[nolife]

Would YOU lend money to a random person without be given any history or their ability to pay it? What if you are trying to protect that savings at any cost including not paying for your debt?

When the restrictions for credit worthiness were reduced about 10-12 years ago for people to buy houses, we saw the end result.

Calculating risk uses science and statistics. It is not perfect but the companies handing out money believe it is better than any other method they have.

Advice for you? Get a no annual fee credit card with what ever limit you can get and start to use it and pay it off in full every month by the due date. You will get the convenience of having a credit card with it's perks and pay nothing extra out of pocket because you are paying it off every month.

People are flat out WRONG to think not paying it off every month and maintaining a balance will help their credit score. Your "report" shows balance, payment history and high balance, not a figure for the remaining after payment.

Re:I have no debt and a hefty savings account

[StikyPad]

Death is a pretty good way to get paid, actually. Estates have to pay off creditors before they can make disbursements to heirs.

Re:I have no debt and a hefty savings account

[Etcetera]

I have no debt and a hefty savings account

According to lenders this makes me a credit risk.

Would you trust someone with a double margarita if this was the first time they've ever drinked?

The best predictor for responsible use of credit given today is whether you've responsibly used credit in the past. Not using credit is not "responsible use of credit" any more than being 10 years sober is "responsible use of alcohol".... it's non-use of alcohol, and, in fact, is a pretty clear hint that maybe you *shouldn't* trust that person with alcohol.

Yes, it sucks if you're being super cautious about any possibility of taking on any debt and you're otherwise a reasonable person, but Catch-22's are hardly limited to credit scoring.

Re:I have no debt and a hefty savings account

[NostalgiaForInfinity]

If the mortgage decision was just between you and your bank and your bank actually took a financial risk, like it used to be, they'd mostly be relying on their own information.

But mortgages aren't really made by banks anymore, they are simply highly paid data collectors; those mortgages will eventually be held by the federal government. For your bank to certify to the federal government how much you pay in rent or what your income is is just an additional and unnecessary legal risk. It is simpler and safer for them to have you certify and sign for all your financial information yourself, because if there's a problem with your mortgage, they can then point at you.

Re:I have no debt and a hefty savings account

[tepples]

the whole payments system now revolves around credit.

Really? I thought it revolved around Debit MasterCard and Visa Debit.

Re:I have no debt and a hefty savings account

[NostalgiaForInfinity]

What gives you that idea? Payment behavior on previous loans is an obvious factor in considering whether to extend new credit. Germany uses it as well, for example:

https://de.wikipedia.org/wiki/...

Re:I have no debt and a hefty savings account

[mjtaylor24601]

Getting a bigger credit limit only to use it for larger payments just means you cost them more.

I can't figure out why you'd cost them more. Please clarify.

It's mostly an opportunity cost kind of thing. With every credit card I've ever had you pay no interest as long as you pay off the balance in full by the payment date. This means that, if you always pay off the balance, the bank is effectively giving you an interest free loan from the time you make the purchase until the time you make the payment. The bank could invest that money they loaned you in just about any other investment and make more than 0% return on it. Giving you a bigger credit limit just means they'd be allowing you to take an even bigger interest free loan.

Re:I have no debt and a hefty savings account

[operagost]

Chase is a nationally chartered bank, so they can essentially ignore the usury laws in your state.

Re:I have no debt and a hefty savings account

[nitehawk214]

Credit card companies also make money on transaction fees. So they can make money off people that pay off their balances every month. I don't know what the split is, but I expect it is much more on the credit side of the business.

I don't know why a company would turn down someone with an 800 credit score. Maybe they are shady assholes that want people to run up huge late fees?

Re:I have no debt and a hefty savings account

[nolife]

There was a good(ish) documentary a few years called Maxed out on Debt... if you ignore the annoying drama stuff in the middle, there's some good frank interviews that explain a lot of it. They _want_ people who arn't completely broke but can't afford the credit so they'll keep making minimum payments forever. They want to load you down with more credit than you can afford so you get on that treadmill.

Companies want the most profit, nothing new here.
It doesn't matter what they want though. You are under no obligation to only make the minimum payment. You have a choice. You are also responsible to only buy what you are capable of paying for. You are 100% in control of what you can afford to pay each month and what you decide to buy on the CC, not the CC company. Your monthly statement shows a chart that lays out exactly what to expect if you only make the minimum payment.

Re:I have no debt and a hefty savings account

[PostPhil]

The system of "credit" is the system of debt. You mostly only need credit whenever you're about to get yourself into debt, otherwise it really has little purpose. The ideal consumer is someone who makes the creditors rich, and must be seen as a worthy investment. The consumer must be:

1. Willing to get into lots of debt

2. Willing and able to pay back that debt with tons of interest (for the rest of their lives)

That's the gravy train for creditors. It's a corrupt system where getting more rich simply requires being rich already so you can loan money/assets, then soak up interest payments from other people's debts forever while you sit on your ass.

If you aren't going to participate in that bullshit, then they'll look for easier prey (a.k.a. people who aren't a "credit risk"). One of the best things you can do for yourself is get off the debt train. Don't be suckered by this scam of an economic system, and instead be thrifty as an alternative to being in debt. That's what people have been doing for thousands of years because the smart people realized that being debt free = freedom.

Re:I have no debt and a hefty savings account

[nitehawk214]

Another possibility is he asked for a card with a huge limit or one of those "gold cards" with extra rewards or something. Anyone with a halfway decent score can get a regular card.

Re:I have no debt and a hefty savings account

[operagost]

You basically can't, now. Barney Frank and his cohorts, as a parting gift, implemented a law that discriminates against 18-21 year olds and makes them essentially unable to obtain credit cards. They did this for your own good, you know.

Re:I have no debt and a hefty savings account

[Githaron]

Credit cards aren't a system to make payments easier.

Except they are. Credit card companies charge merchants fees in order to be part of their network. As long as you are spending with their cards, they are making money by having you as a customer regardless of the fact that you are not allowing your balance to incur interest.

Re: I have no debt and a hefty savings account

[nolife]

Every other interest rate fluctuates with the market. Not credit cards. Frankly it's obvious this is a market failure and it's time for some regulation.

Where did you get that information? Many cards I've seen fluctuate and are not fixed rate. They are based on a fixed value of say 7% + the prime rate published in the wall street journal every first Monday of the month or something similar to that. Some cards are just pegged at some really high value like 20%+ or the max allowed. No need to fluctuate when they are already that high.

Re:I have no debt and a hefty savings account

[jittles]

Death is a pretty good way to get paid, actually. Estates have to pay off creditors before they can make disbursements to heirs.

They do, yes. But that's assuming the estate has money when the borrower dies. And a credit card is unsecured debt which puts the bank at a much higher risk than say a mortgage or other type of debt.

Re:I have no debt and a hefty savings account

[sociocapitalist]

Chase is a nationally chartered bank, so they can essentially ignore the usury laws in your state.

No, they cannot. Rather, they can break the law and count on most people not bothering to contest it but regardless of where they are based or do business, if they are selling something in a given state they have to follow the laws of that state.

Re:I have no debt and a hefty savings account

[nitehawk214]

That is pretty standard. The loans and retail banking divisions would have separate computer systems and pretty much operate as separate companies.

There are also probably laws that govern what financial information a bank can share even with itself.

Re:I have no debt and a hefty savings account

[trytoguess]

I feel like this is one area we may need the government to come in and save people from themselves by restricting how much credit a person can hold based on income or something.

Funny thing is, the government already does this to a limited extent. Folks who got home loans/are trying to get a home loan may have heard of something called Debt-to-Income Ratio (though debt to income percentage may be more accurate). This is the ratio between the all the monthly payments someone pays for borrowing money (Loans, Line of Credits, Credit Cards, etc) and their monthly income. If a bank wants to give you a loan that's backed by Fannie Mae or Freddie Mac, they must make sure that with the new loan, the borrower's DTI will be within a certain percentage. Typically it's around 43% to 49% depending on a lot of factors.

Re:I have no debt and a hefty savings account

[Nutria]

t's mostly an opportunity cost kind of thing.

But opportunity costs aren't *real* costs that get posted to a ledger.

Giving you a bigger credit limit just means they'd be allowing you to take an even bigger interest free loan.

Since they make money from merchants on transaction fees (or do only Visa, MC, AmEx, etc earn the fees?), bumping up your credit limit allows them to earn a larger transaction fee.

Re:I have no debt and a hefty savings account

[jittles]

You basically can't, now. Barney Frank and his cohorts, as a parting gift, implemented a law that discriminates against 18-21 year olds and makes them essentially unable to obtain credit cards. They did this for your own good, you know.

I had no idea this was the case, being out of this age range myself. That is unfortunate, it will make it much harder for them to build credit. I had about $30,000 worth of credit on two cards with only part time employment when I was in school. It was insane, but I never carried a balance.

Re:I have no debt and a hefty savings account

[thoromyr]

An apologist for the banks. Well, we get all types here on slashdot.

It is well known that banks do not like loaning to people without debt. As alluded to by above, their formulas for debt load are carefully calculated. They don't want you to get so far into debt that you will go bankrupt, but they *do* want you farther in debt than you can ever pay off.

I was surprised when I took out a signature loan many years ago. They wanted to know income, expenses, etc., and -- not being a slouch with math and consequences -- I realized that their proposed debt load was literally more than I could possibly pay. Not by a *lot*, no, but enough to never catch up on.

Credit cards are notorious for this as well. If your card is maxed and you only make minimum payments what do they do? Increase the limit. Pay off the balance in full each month? Don't expect to ever see a credit line increase (though they might give you a small one if you ask). This is so well known that, unless you are young and naive, there's no excuse for not knowing it.

When my wife bought a house the loan manager approved it despite the mortgage payment + expenses (food, insurance, gas, etc.) being at least 10% greater than her income. Of course the paperwork didn't show it that way, but it was easy enough to demonstrate it. With a house, essentially all money paid in for the first few years is against interest, not principal. If you end up defaulting because you can't keep up with the payments the bank wins because they get the property *and* made a legally defensible profit (because of the way mortgage payments are scheduled this is disproportionate to the apparent interest -- a quick check showed a 4% interest mortgage producing 7.2% payments in the first year). There is a lot of incentive to oversell people when you have collateral worth more than the value of the loan.

Re:I have no debt and a hefty savings account

[DrXym]

The issuer (by here I mean Visa + Bank) skims 1-2% off every transaction in merchant fees to cover their costs. If someone is spending $20,000 on their card then the issuer has made $200-400 for simply moving money around between a few columns.

But obviously they'd prefer that if a card holder borrows $20,000 over the year and struggles to pay off the debt so they can charge them ursurious rates of interest and other fees.

That said, I'm sure it's a fine line and credit card companies have some kind of blended risk model to ensure that they're always maximizing their return and minimizing the number of deadbeats they attract.

Re:I have no debt and a hefty savings account

[thoromyr]

A point of clarification: the credit card *never* loses money on a cardholder. Merchants have to pay the issuer for every transaction. This more than covers the issuers fixed costs.

However, consider two customers who buy exactly the same amount each month. Customer A earns the card issuer $5 in merchant processing fees, but because he pays off the amount at the end of the month there is no interest. Over the course of a year the issuer will only make $60.

Customer B also earns the issuer $5 in merchant processing fees, but only makes the minimum payment of $300 so there is an interest gain of $45. With the same credit limit and both maxing it out, customer B only manages an additional $1/month in merchant processing fees for the rest of the year, but the total take is over $556.

If customer A only earns you $60 and customer B earns you $556 -- which customer do you prefer?

Now comes the fun part. If you raise customer A's limit you will get only a marginal profit increase if they fully utilize it. If you double it from a $3000 limit to $6000 you have increased volume you only get another $60. But if you double customer B's limit then you get another $556.

And the funny thing is, people who max their card will max it out again soon after a limit increase. *And* they will usually keep making the (new, higher) monthly payments. Of course, there *is* a limit. Which is why an issuer won't double the limit, they use smaller increases instead. But getting near that limit is really good for the issuer. Not just from maximizing the minimum payment, but from fees.

Eventually, customer B will have a bad month and not make the minimum payment. Maybe they'll forget the payment, maybe a medical expense, maybe their car broke down. Whatever it was, it will be an unavoidable expense. So instead of only making $45 from accrued interest, they get another $50 from a late payment. Oh, but that bumped the card over the limit, which is another $50 fee.

For the issuer, this is a wonderful situation because they get all of the benefits of a higher monthly payment without any of the risk associated with a higher balance. If customer B gets caught up at some point then its time to increase their limit (if you haven't already speculatively done so) in order to make it easier for them to miss a payment.

Yes, numbers provided are not exact. But they are in the ball park. I used 18% APR, but I've seen cards with over 24%. I've seen low interest cards though I've never had one myself: I pay the balance off each month so I'm "high risk" for them ever seeing a profit and consequently only get offers for high interest/annual fee cards. But things will change if ever have trouble making payments....

Re:I have no debt and a hefty savings account

[__aaclcg7560]

My father needed a new truck in 2008. He never had a credit card in his life, surprising the dealer with his non-existent credit record. Based on being employed for nearly 50 years at the same construction company, he made a $250 down payment and got an auto loan for the rest. He paid off half the loan amount the following month, and his boss paid off the other half the month after. He got a blitzed of credit card offers after that until he died in 2012.

Re:I have no debt and a hefty savings account

[thoromyr]

Wrong. Merchants pay the issuer for the privilege of taking the transaction. Merchants take full liability for fraud. And the courts have sided with the banks against Target so that merchants must now pay the banks *on top of* eating the fraud.

The only risk for the issuer is someone maxing out a brand new line of credit and never paying a penny against it. But doing so will prevent the person from getting an unsecured line of credit (and it will have usurious interest despite being secured and probably an annual fee). Once you've paid on a card (without paying it off) for a year or so you become pure profit -- even if you renege on the debt they have already made more than your credit limit exposes them to risk of loss.

The "deadbeats" who pay the balance in full each month are only a "loss" against the *potential* profit they would have made if you were less fiscally responsible. It takes at least ten deadbeats to reach the profit level of an "optimized" customer: if they could optimize all of their customers they would have ten times the profits. That is *not* the same as causing them a *real* loss.

Re:I have no debt and a hefty savings account

[thoromyr]

Well said. I covered the difference in value between a "deadbeat" customer and an "optimized" customer without considering this which increases the disparity even further (though the effect isn't as great, if you include opportunity cost the "deadbeat" customer would represent a net loss).

Re:I have no debt and a hefty savings account

[drinkypoo]

Whenever you say "There ought to be a law to stop that"

And how do you intend to do this "one simple trick" without a law?

You fail at reading comprehension. Try again. Or better yet, don't.

Re:I have no debt and a hefty savings account

[Nutria]

An apologist for the banks.

A realist, not apologist.

Of course the paperwork didn't show it that way, but it was easy enough to demonstrate it.

Good thing I'm not the only one to notice that...

The whole thing about "add up all your expenses" is a complete scam, since the "expenses" are minimum CC payments, guaranteeing that you'll stay in debt forever.

Naturally, the solution to that is to buy less house, no matter how pushy They get.

Re:I have no debt and a hefty savings account

[Golddess]

At first I did not understand either. I'm already in your system, I'm already costing you money for that, how would changing one number in a spreadsheet cause me to cost you more money? But after reading your post, I think I understand it now.

Basically, if I am a credit card company, and I give you credit, to you it is just credit, but to me, it is my money. If I give you a credit limit of $500, and you are maxing it out each month, it doesn't matter that you pay it all off at the end of the month, I am basically out $500 each month. If that limit is raised to $1000, and you max that out, and still manage to pay it off in full each month, now I'm out an additional $500 each month.

Does that sound about right?

Re:I have no debt and a hefty savings account

[thoromyr]

so with a credit limit of $5000 how exactly am I supposed to spend $7000 on a single purchase? It isn't very hard to spend that much money, you don't have to get exactly creative. Planning a vacation that costs $10,000 becomes a lot more difficult.

Re:I have no debt and a hefty savings account

[thoromyr]

Actually, having everyone with maxed credit lines is pretty much the optimal situation. Its hard to come up with as good of an investment as an 18% APR.

Re:I have no debt and a hefty savings account

[Quirkz]

Shady indeed. Missing a single payment (due to a bank clerk error, not mine) and Chase upped my interest rate from almost nothing to 30%...which is evidently illegal in NY, if this site is accurate http://www.lectlaw.com/files/b... and yet they do it anyway.

I paid the fee for missing a payment and closed the account so for me impact was limited but for people caught in the trap 30% is, to say the least, abusive.

More than a decade something like that happened to me. I can remember the agent on the other end rebutting one of my points with the statement, "I am unaware of any applicable usury laws in the state of Colorado." That's when I knew I was in trouble.

Later I found out the rate spike hadn't been solely due to one late payment, but also due to a student loan that was supposed to be in deferral but messed up my credit rating before the paperwork cleared. Amazingly, once it did clear up, I was able to successfully argue with the credit card company that they had not properly informed me of the reasons for the rate hike. I not only got them to lower the rate back from 30%+ to something closer to 12%, but also got them to refund several months worth of inappropriate interest. Honestly, I'm still amazed I got that through the system. They gave me a ton of runaround and were repeatedly late following up on things (once even blaming a multi-week delay on a snow storm in North Dakota, as if snowstorms up there in midwinter were somehow an unusual thing). It took a ton of patience and documentation and pushing them.

Re:I have no debt and a hefty savings account

[thoromyr]

Conventional wisdom used as an excuse for the practice. Citation needed for actual proof. And don't even try to use statistics like default rates -- especially when talking about credit cards where a default on $3000 line of credit after paying $4000 against it is a *profit* and only a "loss" because they had hoped to extract another $4000 in payments against the original $3000 expense.

Re: I have no debt and a hefty savings account

[bws111]

There is no 'market failure', there are just a bunch of idiots who take the high rate cards that get sent to them. Shop around. Both credit unions I belong to offer no-fee Visa cards (with rewards) with under 10% interest rates.

Re:I have no debt and a hefty savings account

[thoromyr]

The credit system "seems to work" for the lenders. Not so much for the borrowers. But don't take my word for it, look at their profits.

Re:I have no debt and a hefty savings account

[NostalgiaForInfinity]

so with a credit limit of $5000 how exactly am I supposed to spend $7000 on a single purchase?

You put $7000 into your checking account and pay with your checking-account-linked debit card. Or you get one of the dozens of prepaid VISA/MC cards, put $7000 in that, and pay with that.

Planning a vacation that costs $10,000 becomes a lot more difficult.

More difficult than what? Than if you had a good credit rating? Of course. How is that anybody else's problem?

Re:I have no debt and a hefty savings account

[blue9steel]

Well, they're scoring for people who are excellent debtors not for people who are fiscally responsible. The two groups have some overlap but they're not the same.

Re:I have no debt and a hefty savings account

[bws111]

'Shopping around' inquiries do not count against you. Loan application inquiries do.

Re:I have no debt and a hefty savings account

[mjtaylor24601]

But opportunity costs aren't *real* costs that get posted to a ledger.

Perhaps not but you're still an idiot if you ignore them.

Since they make money from merchants on transaction fees (or do only Visa, MC, AmEx, etc earn the fees?), bumping up your credit limit allows them to earn a larger transaction fee.

As I understand things it's usually the credit card company (VISA, MC, etc) that keeps the transaction fees and the lending institution that keeps the interest, but I suppose it's possible that varies from card to card.

Re:I have no debt and a hefty savings account

[amicusNYCL]

You should just move to the US, where you will have no credit history and a credit score of 0 because the banks don't care what your payment history was in any other country. My girlfriend is from Brazil, and also lived in Finland and Ireland, and when she got to the US on a work visa she had a credit score of 0 with no history. She was unable to get a $300 secured credit card. She couldn't even get a gas card. She was expecting to move here and get a mortgage on a house relatively soon, but she has to be paying taxes for several years in order to qualify for any mortgage. After a year or so she finally got a non-zero credit score, somewhere in the 500s, and at last check it was up to 666 (the credit score of the beast). She had perfect payment history in Brazil, but when she got here legally on a work visa while paying taxes (including social security, despite the fact that she has no social security number and won't benefit) she's treated worse than a kid just coming out of high school regarding credit.

Oh, and once the credit score started changing she saw things on her report that said things like she had too much debt on the $300 secured credit card that she was finally able to get (I have no idea how you can have too much debt on a secured credit card), and then the next report said she didn't have enough. I have a theory that this entire system and all of the rules make sense to someone, but I'm not completely sure. There could be a random number generator spitting out reasons why your score is going up or down and I don't think many people would know the difference.

Re:I have no debt and a hefty savings account

[amicusNYCL]

The only area it's weak in is people who manage to get into their adult life without needing credit, but then if you've never had a car loan, a credit card, or any kind of debt, even if it's because you're financially well off, it's still probably a bad idea to hand you a 300k mortgage.

I bought a car a couple years ago and got a loan for it, and I went to my own bank that I've been with for 17 years. They can clearly see my 12-year history of paying a home mortgage, and they've been my bank for my entire professional career and can clearly see my salary going up and even my current salary. They denied the car loan on the basis that I have never had a car loan. My previous car was purchased with a family loan (family member making 3% interest on an account, my loan would have been 6% interest, we settle at 4.5% and both benefit), and my cars before that didn't need a loan. So despite the fact I've been with these people for 17 years and they know my deposit and withdrawal history better than anyone, and the fact that I've been paying a home mortgage for 12 years, the reason why they wouldn't give me an auto loan was because I had never had one of those loans before.

Re:I have no debt and a hefty savings account

[Nutria]

Perhaps not but you're still an idiot if you ignore them.

As a lost source of income. Not as an expense.

As I understand things it's usually the credit card company (VISA, MC, etc) that keeps the transaction fees

My research indicates that the CC network and issuing banks split the fees.

Re:I have no debt and a hefty savings account

[jittles]

Actually, having everyone with maxed credit lines is pretty much the optimal situation. Its hard to come up with as good of an investment as an 18% APR.

Except that you would then have a lot of money tied up in unsecured loans. You have to have a proper balance of all types of account holders - those who charge a lot but pay it off, those who carry a small balance, and those who are raking in the interest. They make money off of all three types of card holders but the first two groups offset the risk of the third.

Re:I have no debt and a hefty savings account

[david_thornley]

The American system is based on correlations of characteristics with the likelihood of repaying loans. Credit ratings are calculated according to a secret formula (the idea is to prevent people from gaming the system).

You think of yourself as someone who's good at managing money. The credit rating agency sees someone with no track record of making payments, and so they don't know how dedicated you is to paying off loans. For all they know, you are good at paying for tangible things and will forget about intangibles. Alternately, what do you need credit for? If you've been paying everything cash or equivalent, why start borrowing? A home mortgage is one thing, but if you're applying for a credit card you're changing your method of managing money.

Disregarding all theoretical speculation, I'd bet that there are statistical proofs that someone who has never borrowed is a greater risk than someone who incurs debts and pays them off.

Re:I have no debt and a hefty savings account

[Cederic]

Please refer to evidence for that.

Erm. Behaviour of organisations with a vested financial interest in managing the risk of extending credit.

If prior debt repayment performance were not a strong indicator of future likelihood of repaying debt then it wouldn't be a factor in whether to extend new credit.

Re:I have no debt and a hefty savings account

[david_thornley]

I have the same attitude, but put most of my purchases on plastic. If I won't be able to afford to pay it off next month, I do without. Hence, I have a really, really good credit score.

Re:I have no debt and a hefty savings account

[ewibble]

When someone with an advanced math degrees tries to sell you something, there is quite probably something you missed, but it probably is not in your favor. (applies to all ads really)

If your maths skills are lacking consult someone independent has the skills. Also I would not consider finance advanced math.

Re:I have no debt and a hefty savings account

[david_thornley]

You can pay off your cards every month and have a credit score over 800.

Re:I have no debt and a hefty savings account

[kaatochacha]

oddly enough, according to credit reporting documents, having ANY debt at all hurts my score. This includes, for example, $25 charged before my statement arrives ( I pay everything off every month).
That stupid $25 counts as "debt" and thus supposedly counts against me.
I guess I could overpay, but if you continually do that, they eventually get tired of it and issue a credit check ( I had this happen once).

Re:I have no debt and a hefty savings account

[sociocapitalist]

More than a decade something like that happened to me. I can remember the agent on the other end rebutting one of my points with the statement, "I am unaware of any applicable usury laws in the state of Colorado." That's when I knew I was in trouble.

Later I found out the rate spike hadn't been solely due to one late payment, but also due to a student loan that was supposed to be in deferral but messed up my credit rating before the paperwork cleared. Amazingly, once it did clear up, I was able to successfully argue with the credit card company that they had not properly informed me of the reasons for the rate hike. I not only got them to lower the rate back from 30%+ to something closer to 12%, but also got them to refund several months worth of inappropriate interest. Honestly, I'm still amazed I got that through the system. They gave me a ton of runaround and were repeatedly late following up on things (once even blaming a multi-week delay on a snow storm in North Dakota, as if snowstorms up there in midwinter were somehow an unusual thing). It took a ton of patience and documentation and pushing them.

I found it easier to close the account and move to another country.

Re:I have no debt and a hefty savings account

[Cederic]

As a borrower (several hundred pounds a month, every month) I pay no fees, no interest, no charges.

The merchants do, on my behalf, and that's reflected in the prices they charge me. That's offset by the convenience involved for both parties (particularly when paying online), the fraud guarantees I get (through using a credit card) and the fact that even if I personally don't use a credit card the merchant wont drop their prices.

So on the whole I think it's working pretty well for me. The profits don't seem excessive either - Capital One has a return on equity of around 10%, compared to nearer 20% for Walmart and 43% for Apple. Not exactly gouging their customers.

Re:I have no debt and a hefty savings account

[SharpFang]

Yes, it can, but there are still a few semi-sane people in the government that make sure that if everything crashes and burns you can still get a tenth of what you had back.

Re:I have no debt and a hefty savings account

[edtice1559]

On a credit card, the issuing bank makes a cut of every purchase even if you pay on time. So, yes, you would. I wouldn't expect the customer service person to actually know the reason they didn't give you the increase. But since most credit cards these days will give you your credit score for free as well as a summary of the factors that affect it, this stuff is easy to figure out.

Re:I have no debt and a hefty savings account

[ewibble]

There are reasons, it is sometimes financially advantageous to buy stuff on a credit card, you get use of the money free for about a month so you may get/save interest, (especially if you have a revolving credit home loan you are offsetting it against) also you maybe on a rewards scheme. Your system still works for rewards schemes, but it is just more convenient not to put the money in. But for interest it defeats the purpose to put the extra money in before the due date.

Re:I have no debt and a hefty savings account

[edtice1559]

Yes but there's no dichotomy here. You can increase the first guys limit to the sky. In fact, American Express has no limit on many cards issued to the type of borrower in your first example. No preset spending limit.

Re:I have no debt and a hefty savings account

[edtice1559]

Even if you can pay for it right now, you should purchase with a credit card and pay it off every month. First it's like the bank lending you money at zero interest. Second you get a lot of consumer protection using the card. The only reason to always pay cash is because you don't trust yourself to have the credit card.

Re:I have no debt and a hefty savings account

[SharpFang]

And here I wonder - why not a debit card? From convenience point of view it's quite equivalent. But you don't pay with money you don't have, which you'd need to pay back at the end of the month. You pay with money you have - it's an electronic wallet - and they can't forbid you to pay as long as you do have the money.

So - what's the deal? Why are Americans so hooked on credit cards? Convenient electronic wallet and a looming wraith of debt with exorbitant "penalty" charges if you fail to fulfil the conditions. And for what - for having a month's worth of salary available a month ahead of time? That gain is only available once, the moment you get the card. Afterwards you're in the same place you were in the beginning - only with extra charges looming if you fail to satisfy the conditions.

Re:I have no debt and a hefty savings account

[SharpFang]

This could be voluntary though. You don't want the credit - you don't share the details. If you desire to keep your net worth in positive numbers, you don't want a credit.

Plus this would harm cheats the most. Honest citizens would remain unhurt.

Re:I have no debt and a hefty savings account

[ewibble]

No that is not how it works, if the credit card company gives you $1000 and you spend that $1000 that month they are not out anything for that month, I believe they do not pay the vendor any money either. That is you owe them $1000, they owe the vendor(s) $1000 you are not using there money at all. Not until you do not pay the full amount on your bill do they actually start incurring an interest cost, because they have to pay the vendor anyway. That is why cash advances incur interest immediately since they pay the money immediately. Also that is why you can cancel a payment easily, since the credit card company hasn't paid anybody anything yet.

Re:I have no debt and a hefty savings account

[SharpFang]

They do. But regardless, several positive samples of data are more than no samples of data; this accounts for ability to pay debt but not for willingness to do so. A person with positive net score could just get a bunch of credit money and run to a remote country. A person in debt doesn't have the money to make that move.

OTOH the system can be gamed. If you do have a high positive net worth, you can just build up your credit score by taking increasingly bigger loans (and paying them back without ever spending the loaned money) until they build a credit rating good enough to make a big grab and run. But that requires time and effort.

Re:I have no debt and a hefty savings account

[Nutria]

You have the AACS encryption key in your sig block, yet write "Honest citizens would remain unhurt", aka "you've got nothing to hide if you've done nothing wrong".

That's serious cognitive dissonance.

Re:I have no debt and a hefty savings account

[ewibble]

That is not true, I always pay off my credit card debt in full each month, (Ok once I didn't accidentally transferred $100 less once 20 years ago, go stung with about $4 in interest for a few days interest, they charge you for the whole amount not just the amount overdue), I do occasionally get offers to increase my credit limit.

I am not saying you are not more likely to get offers to increase your limits if you don't pay, just that sometimes you do get offers even if you do pay in full.

Re:I have no debt and a hefty savings account

[ewibble]

Naturally, the solution to that is to buy less house, no matter how pushy They get.

Also never set repayments based on term always on how much you can pay. It is amazing how much a few extra dollars a week can save in interest and reduce your loan term.

Re:I have no debt and a hefty savings account

[nmr_andrew]

On the other hand, why would you increase the credit limit of someone who never gives you more than you gave them in the first place?

Why wouldn't the bank increase the credit limit of someone who always pays back on time and clearly has the assets to continue doing so? Sure, they bank doesn't get to make $BIGSUM at extortionate interest rates. But they do charge a fee to the merchant for every single transaction. IIRC, it averages somewhere around 2% of the purchase price. So if I buy a new laptop for $1000 and charge it on my Visa card, the issuing bank and Visa (via their processing network) split $20 of profit. Depending on how they do things, they can then float the $20 and collect interest on it for at least a few days.

Even if every single cardholder paid off in full every statement, you're looking at tens (or more) of millions of accounts.

Re:I have no debt and a hefty savings account

[nolife]

The reason I use credit cards instead of debit cards.

1) I do not want charges going directly from the checking account. Although debit cards do contain fraud protection, the money is gone and taken automatically and then I have to start the process of getting it back. Worst case, my checking account gets drained and then checks bounce, my automated payments do not go through, they start pulling funds from my savings account to cover the default etc..

2) Additional features of using a credit card. Rental car insurance coverage (above and beyond your normal auto insurance which typically only pays for the damage to the actual vehicle, not the loss of use the rental car company will charge you for), purchase protection for items lost or stolen in the first 90-120 days, extended warranties, points or dollars back (which can add up to great benefits or cash), accidental death insurance and there are others

Both of those benefits can be had from any number of credit cards that do not have any annual fee or fees at all and if you pay them in full every month by the due date, you pay nothing additional over using a debit card. Make sure you pay them every month. I have automatic billing setup with my bank or the credit card company to pay the full amount due and I've never been late with a single payment in 10+ years.

Re:I have no debt and a hefty savings account

[ewibble]

the risk of fraud is generally placed on the vendor not the credit card company

Re:I have no debt and a hefty savings account

[tlhIngan]

Eventually, customer B will have a bad month and not make the minimum payment. Maybe they'll forget the payment, maybe a medical expense, maybe their car broke down. Whatever it was, it will be an unavoidable expense. So instead of only making $45 from accrued interest, they get another $50 from a late payment. Oh, but that bumped the card over the limit, which is another $50 fee.

For the issuer, this is a wonderful situation because they get all of the benefits of a higher monthly payment without any of the risk associated with a higher balance. If customer B gets caught up at some point then its time to increase their limit (if you haven't already speculatively done so) in order to make it easier for them to miss a payment.

And usually if you miss a payment, your interest rate shoots up. I checked the terms of mine, and they're 19.99% APR, but miss a payment, and they have a right to raise it to 24.99%. (Not that it makes a difference - I pay off the card every month).

The problem is, it's a risk. The guy who pays it off - is a very safe bet, and banks love having a base of "safe bets" for guaranteed income. The guy who makes minimums, well, you can try to bilk them of everything, but a credit card is unsecured - they could very well walk away from the debt and you're stuck holding the bag with nothing to show for it. You can't repo either - unsecured.

That's why credit cards are structured they way they are - it's an unsecured loan so the banks want to get people close to as much money as possible, but not so much they walk away from the debt.

Re:I have no debt and a hefty savings account

[fropenn]

Why do you need a loan? You are not part of their target group so your score is irrelevant.

Re:I have no debt and a hefty savings account

[nblender]

actually, the credit card company is getting 2-3% of the purchase price from the vendor (depending on whether it is a 'gold' card, or something like that)...

Re:I have no debt and a hefty savings account

[Khashishi]

Never say never. The cardholder loses money if the customer never pays the credit card debt.

Re:I have no debt and a hefty savings account

[russotto]

Paying off debt early doesn't make your rating bad. It can slightly affect the rating by changing the average and (if it's the oldest debt) oldest account age, but it's not going to change it a lot.

Having no credit history is a problem, but it's one which is easy to avoid for anyone with a job: Get a credit card, or multiple cards. Use them for stuff. Pay them off. (It's *not* true that paying your credit cards off in full every month hurts your credit score.) By the time you've got the down payment for a house, you'll have a credit history.

Re:I have no debt and a hefty savings account

[Khashishi]

I figure the people who are likely to be deadbeats are also likely to have positive bank account balances with the same bank, so even though they aren't making money for the credit card department, the bank is still profiting off them since the bank lends the deadbeats' money to someone else. So it makes sense for the bank to keep these deadbeats happy.

Re:I have no debt and a hefty savings account

[Khashishi]

If you have the money already, then why bother even paying by credit card? You can just use a debit card.

Is this because they offer you miles? This just hurts the merchants.

Re: I have no debt and a hefty savings account

[lymond01]

You have no history of repaying debt. So yes, you're more of a risk than someone with a mortgage or credit card payments. If I didn't know you, I'd consider long and hard before loaning you money too. Perhaps the reason you have so much cash on hand is because you don't pay it back. :-)

Re:I have no debt and a hefty savings account

[NostalgiaForInfinity]

Your implication being that it shouldn't matter to the credit card company whether they give cards to someone who increases their fraud risk? If that reasoning worked, why would they do any screening at all then? Just to deny people cards in order to inconvenience them, because credit card companies are big, evil corporations?

Credit card companies depend on vendors to take their cards for a profit; if a credit card company doesn't select low-risk, low-hassle customers to carry their cards, then vendors will drop that card and the credit card company will stop making money.

Re:I have no debt and a hefty savings account

[SharpFang]

In Europe you can get most of 2) on debit cards as well - and in case of 1) you can set your own limits on the debit card; if you plan a big purchase or overspend in given month, just log into your internet banking account and increase your limits.

Re:I have no debt and a hefty savings account

[SharpFang]

There's a difference between hiding your personal information (which is yours and nobody has any right to it) and hiding income (which is taxed; a shared resource with "tragedy of the commons" social trap triggered by violators.)

Re:I have no debt and a hefty savings account

[tehcyder]

Is there something wrong with this whole system?

It's called capitalism: if you don't make them any money, why should they care about you?

Re:I have no debt and a hefty savings account

[tehcyder]

But opportunity costs aren't *real* costs that get posted to a ledger

Not in double entry bookkeeping terms I suppose, but if a credit card company gives you an interest free loan of $x there is certainly a real cost in economic terms, as that $x could have earned them actual interest.

Re:I have no debt and a hefty savings account

[Nutria]

So, tell me your income. And net worth.

Re:I have no debt and a hefty savings account

[Nutria]

Not in double entry bookkeeping terms ... there is certainly a real cost in economic terms, as that $x could have earned them actual interest.

Congratulations for writing out the definition of "opportunity costs".

Re:I have no debt and a hefty savings account

[SharpFang]

What will I get in exchange?

Re:I have no debt and a hefty savings account

[Nutria]

What will I get in exchange?

The good feeling that you've done your part to ensure that information wants to be free.

(Remember, you said that you've got nothing to hide...)

Re:I have no debt and a hefty savings account

[SharpFang]

But I'm lazy.
In this mentioned case I'd receive a fair credit rating. In case of tax returns I'm getting whatever goods my taxes pay for, plus not getting bullied by the country. I see no benefits in passing this information to you. Provide an incentive (say, 0.1BTC to my wallet, 18vsEWJizN2dEdEhykXF4kFQ1udS4n7wSr ) and you can have it.

Re:I have no debt and a hefty savings account

[doccus]

I'm trying to work out the difference between this and indentured servitude.. but I just can't seem to find one..

Re:I have no debt and a hefty savings account

[Nutria]

Information wants to be free. Free your information!!!!

Re:I have no debt and a hefty savings account

[minstrelmike]

Getting a bigger credit limit only to use it for larger payments just means you cost them more.

I can't figure out why you'd cost them more. Please clarify.

It's mostly an opportunity cost kind of thing. With every credit card I've ever had you pay no interest as long as you pay off the balance in full by the payment date. This means that, if you always pay off the balance, the bank is effectively giving you an interest free loan from the time you make the purchase until the time you make the payment. The bank could invest that money they loaned you in just about any other investment and make more than 0% return on it. Giving you a bigger credit limit just means they'd be allowing you to take an even bigger interest free loan.

That's the way the credit card companies make money off of _you_.
They also make money from a percentage (or sometimes fixed) cost of everything you buy. So if you use a credit card daily and pay off $800-1000 every month, the credit card company makes money on that account. They need to make at least enough money each month one way or the other to justify managing the costs of dealing with your account.

Re: I have no debt and a hefty savings account

[arwel]

In the UK, paying by credit card gives you more consumer protection rights than if you pay by debit card or cash, if the amount is over £100. This is because the credit card company is jointly liable with the seller if the goods are defective, so if you're sold a lemon you just claim the money back from the card company.

Re:I have no debt and a hefty savings account

[Ol Olsoc]

According to lenders this makes me a credit risk.

No doubt.

That's why I occasionally buy large things on credit, and pay them off quickly even though I have the cash.

Also, a really cool method of keeping credit churning along is getting a cashback credit card, living on it, then paying it off every month. You not only do not pay interest, but you have a record of what you spent, and you actually make a little money - I get back a thousand a year, more or less.

The system has some quirks, but then don't we all?

Re:I have no debt and a hefty savings account

[Ol Olsoc]

They _want_ people who arn't completely broke but can't afford the credit so they'll keep making minimum payments forever. They want to load you down with more credit than you can afford so you get on that treadmill.

I'm kinda on the fence with regards to how I feel about this. One one hand, the banks are doing some shady stuff and directly trying to set people up for financial disaster for their own benefit.

Yep, every dollar of debt you take puts $10 back into the sytem which they can then lend out to ten more suckers. Gotta love it.

Not completely. It might seem that people who pay off their credit cards every month would be refused credit under the "sucker system" y'all describe. But those people result in cash flow for the companies. If everyone made the easy minimum payments, it would be a big problem for them.

Re:I have no debt and a hefty savings account

[Ol Olsoc]

they're making the offer because it *is* within your means...

to pay the monthly minimum. Which is exactly what AC wrote.

Unfortunately, that isn't what I see. As easy as it is to make the CC company the root of all evil, then people just shouldn't use them, or only as little as absolutely possible.

But altogether too many people have zero financial discipline. NO one is making them buy a brand new computer 100 inch led tv take a vacation to Disneyworld every year go on a cruise buy a 20thousand dollar ring for the wife's/husband's birthday buy new furniture every two years and on and on and on.

It's how people get into financial messes, because it's their fault. I was a completely stupid fucker because I didn't refinance my house and buy Escalades and HumVee's or take the family and my kid's friends to Disneyworld like many of my co-workers, or buy a million dollar house with 250 dollars a month payment on a 50 year ARM mortgage. That's where the smart money was. We'll just keep refinancing and it will be heaven on earth for those who get in on the free money, gravy train.

But now, they are still paying on that car they bought in 2002 thropugh a continued mortgage, and it's probably been crushed for scrap by now. Honest to gawd, there were some people I worked with who bought houses in the same price range as mine, but at the time I had mine paid off, they were right where they started.

Now, I'm retired ten years early, and they may be looking at selling their McMansion because their Social security will barely cover the taxes on it, or more likely, not retiring until htey get the axe.So they'll fall off that bridge when they come to it.

So yeah, blame those bastard's at the Credit card company. Lack of disipline doesn't have anything to do with it. (sarc)

Re:I have no debt and a hefty savings account

[Ol Olsoc]

In other words they see that in their industry I am, and will remain, what is called a "deadbeat." This does not mean a non-payer, this means someone who PAYS and doesn't carry balances,

You and I are cash flow. It's pretty obvious if everyone who paid those minimum monthly payment, that the model wouldn't work. Or at least it should b obvious. They are quite happy to get my check every month.

Re:I have no debt and a hefty savings account

[NateTech]

Agreed. We've paid off everything every month for well over a decade, pushing two. They love us. The reason is -- they get money from the merchants just for us using the cards. (The original business model of the cards, long before exorbitant interest rates and penalties.)

They especially love us when we run large items through a card and pay them off.

Considering most good cash back or points cards give roughly 3% of the value of the purchase back to the card holder, that would indicate to me that the merchant is paying at *least* 5% and the card company is keeping 2% or so.

The very nature of the transaction being against small business, whenever we do business with a small business or friends, we pay them in cash. No point in them eating 5%+ of the sale so I can have 3% of it as a cash-back award, and the card company can have 2%. But large businesses that make it easier to pay them with a card than pay them cash? They can eat it... even though we know they simply pass it back to us as a higher price tag.

Re:I have no debt and a hefty savings account

[Reziac]

They don't want people with great credit and great ability to pay up. They want people who can't pay it off, so will carry a balance and therefore pay interest, which is where the credit companies make their money.

If you're not quite able to pay off your card (so that interest keeps accruing), but can make regular payments and won't quite stiff 'em, that's their notion of an ideal customer.

A customer who keeps their credit card paid off all the time is just an expense.

Re:I have no debt and a hefty savings account

[hucker75]

In the UK, if you can't pay them back, you just don't. You set up a token payment of £5 a month which will pay it off in 200 years, and they charge no interest. You'd think that would screw up your rating, but it doesn't. Other card companies still give you fresh cards.

Re:I have no debt and a hefty savings account

[RyoShin]

If customer B gets caught up at some point then its time to increase their limit (if you haven't already speculatively done so)

I wonder if this is what Discover did to me. Beginning of the year I had $5500 in credit with a $6500 limit. Starting with a nice bonus I received in January, I've been aggressively "pay-using" the card[1] when I hadn't touched it the prior year. Since then I've gotten three credit line increases: $8000 (soon after I deposited the bonus), $11,000, and two months ago it went to $13,500.

Of course, the joke's on them: I only have $111 on the account now, which will be paid off with my next paycheck, and then the card will be set aside and used only for a few small monthly bills (paying off the balance each month) or when their cash back promotion lines up with a purchase.

[1] By "pay-using", I mean I dump as much of each paycheck as possible to pay down the balance, then use the card for my normal purchases. Thanks to a lower interest rate applied to newer purchases, and any payment over minimum being applied to older purchases, I was able to avoid probably $200 in interest charges this year and the effective monthly payment was only 50% more than usual.

Re:I have no debt and a hefty savings account

[chipschap]

This is the OP for this thread, some good answers here, and this is what I draw from it.

1. I pose a higher risk in someone's credit model because, with no debt, I have no recent history of installment payments (such as a mortgage would provide).
2. I offer a lower profit potential since the CC company will never get any interest from me. They do make plenty with swipe fees, but they can make tons more from someone who pays interest. Add to this (2a) that the CC company's risk does go up, even if slightly, if I get a higher limit, without them getting any upside except some swipe fees (minus cashback; see below).
3. I naively assumed--- and at my age I know better--- that the CC company would be interested in providing service in return for my business. Fat chance of that.

As to why I care:

1. I do use credit cards as a convenience, and I focus on the card with the greatest cashback, so that card get used very heavily. (And, now that I write it out, it's obvious that such usage--- taking the maximum cashback while not ever paying interest--- is hardly an incentive for the CC company to give me a limit increase.)
2. I'd want a higher limit to be able to make large one-time purchases on occasion, such as a new car or perhaps even a round the world cruise (well, probably not that! but you get the idea).

And as to the idea of going into debt being more optimal for me personally: That may in fact be true (although I certainly invest rather than keep savings in a savings account!). However I'm at an age where security of capital (so that it can produce income) is important. Investments in quality dividend-bearing mutual funds are about the right level of risk.

Thanks to all for a good discussion which for me, at least, clarified several points.

Re:I have no debt and a hefty savings account

[SharpFang]

Nah, it's more of a sporting thing. Come and get it if you can.

Re:I have no debt and a hefty savings account

[Nutria]

A squad from the EFF "Snowden Brigade" is coming to take your Geek Card.

Re:I have no debt and a hefty savings account

[niftymitch]

They _want_ people who arn't completely broke but can't afford the credit so they'll keep making minimum payments forever. ......

Yep, every dollar of debt you take puts $10 back into the sytem which they can then lend out to ten more suckers. Gotta love it.

Not completely. It might seem that people who pay off their credit cards every month would be refused credit under the "sucker system" y'all describe. But those people result in cash flow for the companies. If everyone made the easy minimum payments, it would be a big problem for them.

There are multiple games ... like a casino.... each game has it's own odds and action.

The people that pay off their debt are a predictable cash flow.
The fee that the merchant pays is what the casinos call action.
With fees in the 2.5% to 3.5% the lender can make 12x2.5% on
his bank... a 30% margin is not a bad business.

A second game is the individual with a constant balance of say $5000..
and a constant cash transaction rate of also $5000 a month. This is almost
a double dip situation because the full $10,000 is subject to interest at
near 25%per year and the $5000 action is also 30% so.
      (30% of $5000)+(25% of $10,000)=$4000
Since on average the bank has floating $7500 this is a marvelous rate of
return. The banks will argue and toss better data models and calculus
at you but the difference is often padded with short term-overnight loans
from the Fed. at one percent.

It is a racket (IMO), there are serious writedowns for fraud but I might assert
the biggest expense is the layers of management and regulatory compliance.
Most organizations do not care about regulatory compliance because
it is a documented obligatory expense and comes of the books very quickly.

Our elected officials need to pay attention....
First they need to pay attention to regulations crafted under the rule of law.
We no longer live in a world of law we live under a burden of dynamic
regulations rubber stamped by laws that allow regulations to go into effect
as a default fall through.

Comments like this illuminate the problem. When House Minority Leader Nancy Pelosi (D-CA) to
defend her 2010 comment that “we have to pass the bill so that you can find out what is in it, away from the fog of the controversy.”
She and the press ignored the reality that the law was simply a framework for regulations that on the first iteration
comprised 10x the page count of the law the reality is more obese...11,588,500 Words: Obamacare Regs 30x as Long as Law...
http://www.cnsnews.com/news/ar...
"Bureaucracies in the Obama Administration have thus far published approximately 11,588,500 words
of final Obamacare regulations, while there are only 381,517 words in the Obamacare law itself.
That means unelected federal officials have now written 30 words of regulations for each word in the law."

Golly I got off track...

Re:I have no debt and a hefty savings account

[SharpFang]

If they manage to get to me they can have the data too.

Words with multiple meanings

[darkain]

I just wasted some n00bs in that FPS match, y0!!!

OH SHIT, THERE WENT MY CREDIT SCORE.... but at least I scored in the game!!! (but yet to score in real life...)

Re:Words with multiple meanings

[quintessencesluglord]

When your means of assessing risk (housing bubble anyone?) is more or less reading tea leaves and cat entrails, looking for word associations on social media is hardly surprising.

That most financial institutions would have crashed and burned with the last recession isn't surprising either.

Look at this as proof that another round of bailouts are coming, with bankers stating with a straight face "never saw wasted on his facebook page, so I thought he was a good risk" when student debit becomes the next reaming of the taxpayer.

Joy.

Re:Words with multiple meanings

[phantomfive]

"never saw wasted on his facebook page, so I thought he was a good risk" when student debit becomes the next reaming of the taxpayer.

Nah, how much extra taxes did you pay because of TARP? If government spending goes up 20%, or down 20%, it won't affect your taxes. It will affect how much the government borrows, and maybe someday that will blow up, but right now expenses are dissociated from income....it just changes the number in the debt column.

Re:Words with multiple meanings

[GinRummy33]

Image if you're Jimmy Buffet. Marguaritaville must have no credit at all. :)

Re:Words with multiple meanings

[thegarbz]

I just wasted some n00bs in that FPS match, y0!!!

OH SHIT, THERE WENT MY CREDIT SCORE.... but at least I scored in the game!!! (but yet to score in real life...)

Yep the system works.

Re:Words with multiple meanings

[quintessencesluglord]

Then logically, no one paying taxes would only mean the government borrows more, and since expenses are dissociated from income; no problems, right?

It will affect how much the government borrows...

Which has no effect on the interest rates that anyone else pays.

Re:Words with multiple meanings

[AmiMoJo]

I just lost to some douchbag on Counterstrike, so I created a fake Facebook profile for him and filled his timeline with posts about getting wasted, and then joined the KKK Facebook group and made friends with some neo nazis.

Re:Words with multiple meanings

[MickyTheIdiot]

The average taxpayer pays over $2000 a year for different corporate welfare packages. This is compared to less that $20 for actual help to others. None of the corporate ass kissers even bats an eye.

Re:Words with multiple meanings

[StikyPad]

Statistical analysis is a bit different from reading tea leaves. That's not to say they did it properly, but if they didn't, then they're only doing themselves a disservice by ignoring a potentially profitable customer base.

Personally, I would not/do not find it at all surprising that people who are getting shitfaced and posting about it on Facebook are a higher credit risk, because it's a pretty stupid thing to do, for many reasons. Either the individual doesn't know that, or doesn't care, but either way, it's not the sign of a responsible individual.

Re:Words with multiple meanings

[Bob the Super Hamste]

I always laugh at the didn't see it coming statements. I bought a house a couple of years before the bust and my wife and I qualified for some huge loan (I think it was 3/4 of a million or something like that) that would have consumed all of but $20 or something of our monthly pretax income. I looked at the loan officer and asked him if he was really retarded as it would be physically impossible for use to make even 1 payment. His response was that is what the system told him. I then provided him with a reasonable monthly payment and the amount we could put down and made him work backwards from that to figure out what we could really afford. At that point I realized that the housing market was headed for a huge correction and it wasn't going to be pretty.

Re:Words with multiple meanings

[operagost]

We have a government-- especially politicians from one specific party-- who say that the size of the debt doesn't matter. Yet, somehow, they are concerned that we might not be taxing certain people enough. If they don't need the money-- because we can just keep borrowing-- then the only explanation is that they want to punish people for making "too much" money (which I think is over $413,000 for 2015).

Re:Words with multiple meanings

[Skater]

I was buying a house in ~2006, and they somehow got me qualified to afford the new house even if I hadn't yet sold the condo I already owned, so that the offer on the new house wouldn't be contingent on the sale of the condo. There was no way in hell I could afford both. I didn't have much of a down payment, beyond the equity in the condo. But I benefited from the insanity in that it allowed me to put in an offer without the contingency. I wondered how they were able to make it work, when I knew it definitely wouldn't. I'm sure it wouldn't happen today.

In the end, I sold the condo before I bought the house, and I've made every payment on the house on time, no problem, no bailout needed.

Re:Words with multiple meanings

[Bob the Super Hamste]

During that time a bunch of my friends and my wife's friends thought we were dumb because we bought a modest house we could afford if one of us lost our job using a traditional 30 year fixed with 20% down instead of buying as much house as we could afford and then eating dog food. Then the shit hits the fan and while we just recently got equity back in our house we didn't have to file for bankruptcy, get one of the government bailouts, do a short sale, etc like so many of them did. My only complaint about my situation was that for the longest time we couldn't refinance it because the mortgage was underwater and even though we were financially better off, interest rates were lower and we had never even been late on a payment. We eventually did get it refinanced and went from a 30 year down to a 15 year mortgage and it only added $18 to the monthly payment but we would have it paid off 7 years sooner.

Re:Words with multiple meanings

[SharpFang]

Yeah, it changes a number in the debt column... too bad it's a variable in a differential equation.

That means even if the value going directly into the debt column is the same, there's still interest to be paid, and the debt grows.

And sooner or later the debt+interest exceeds the credit capacity and your income goes poof. No, not through tax increase because it's too obvious, ugly and unpopular. It goes poof through inflation. You earn the same number of dollars but the dollars can buy you less. It's a process that's hard to notice; it even comes with something that looks and feels positive - as the value you earn dwindles your salary is raised and you earn a higher number of dollars. So what if you can still buy less with them than before...

The numbers stay the same, but their actual meaning is only as the percentage of the whole. And as "the whole" grows they mean a diminishing percentage - literally money is stolen from your wallet and your account - not the dollars as units, but their value.

Re:Words with multiple meanings

[phantomfive]

And sooner or later the debt+interest exceeds the credit capacity and your income goes poof.

Yeap, but for now it's not something anyone pays for. It's an issue to worry about in the future (like all debt, I guess). I'm not saying that's a good thing, just observing that's how it is.

Attention all wasters

[frup]

Please revert to the terminology of trashed. This is in relation to bug that was found in the social media freedom index. Testing so far reports it temporarily fixes the problem. Stay tuned for further updates.

The Internet is turning into War Games

[istartedi]

The only winning move is not to play.

Re:The Internet is turning into War Games

[Jane Q. Public]

Yeah, starting with the credit companies.

Re:The Internet is turning into War Games

[AHuxley]

Yes some very interesting groups collected vast amounts of the early and emerging/defunct/still used social media 2.0 sites.
Every public face, name, tag, link, connection, comment can be found for a price from the private sector. Great for the private investigators, gov and journalists. Now all that is been shared to create a credit score. As for "don't have a traditional credit profile" was that not the origins of the "no income, no job and no assets" loans that worked out so well?

The loan itself is pointless! But back at the bank room, they believe you can repackage inner city loans as AAA Debt. That there can be "acceptable losses."

Re:The Internet is turning into War Games

[Anonymous Coward]

And how long until not having a Facebook account negatively impacts your credit score?

Re:The Internet is turning into War Games

[Narcocide]

I'd assume it already does for many people, one way or another, since it negatively impacts your ability to get hired at many companies.

Re:The Internet is turning into War Games

[sociocapitalist]

The only winning move is not to play.

Which makes it difficult to buy your own home if you're not independently wealthy.

Re:The Internet is turning into War Games

[houghi]

In Belgium Credit Scores work differently.

Each credit and loan is noted at the National Bank. So each company giving credit sees how much credit uyou have (not with what company)
If you negected to pay a credit, you will be put on a black list. No new credit is possible.

If you take a new loan/credit, you have to provide proof of your income and e.g. tell how much rent you pay.

So the credit company sees your income and sees what goes out. Risk calculation is then very easy.

Now if you give a loan and the person can prove that he should NEVER have gotten that loan, he is not required to pay.

Obviously this excludes fraude on the side of the credit taker.

No bullshit looking what you do on FacePalm. No looking if you are nice to kids. Just boring numbers that are provided by either the state or the customer.

Again: if a credit company gives out a credit and the customer should not have gotten it, they do not need to pay back the loan and it is a loss for the company. If they take too many of these risky customers, fist warnings then serious fines and finaly the closing of the company can and will be enforced.

I have see credit companies up close behaving badlly. Adapt or close shop is what the message is.

Obviously fraude and fraude prevention are part of it, just like money maudry detection and what not, but basics are:
Look at the National bank what the credits and loans are as well if he is on a black list
Look at the income of the customer
Look at their expenses to live and what not
And then calculate if there is room for a credit or not. It is complex to to, but not very hard.

Re:The Internet is turning into War Games

[TheDarkMaster]

Well... Usually when you will be forced to pay three houses to have one as goes on here (ludicrous interest rates, "taxes", even plain fraud), it is best not to take the trouble of trying to buy a house.

Re:The Internet is turning into War Games

[sociocapitalist]

Well... Usually when you will be forced to pay three houses to have one as goes on here (ludicrous interest rates, "taxes", even plain fraud), it is best not to take the trouble of trying to buy a house.

Have to disagree, sorry. Better to pay X (including interest) to buy a home and have something at the end of the term vs. pay X in rent and have nothing at the end of the same term.

Re:The Internet is turning into War Games

[rholtzjr]

The only winning move is not to play.

I have been on the "no/bad" credit side for the past 3 yrs. I am trying to get it down all the way to the minimum score, because I do not believe that a score of zero is obtainable until you are dead.
Sold my house, paid of car, no credit cards, only checking/savings/401K's .
You know I don't miss buying something until I have the cash to do so.
I do not want their credit, keep it, I can live without it and especially I do not want to follow the same pattern as the current government and double my debt in a four year period.

Re:The Internet is turning into War Games

[TheDarkMaster]

Lets put more context. Here a house to get started costs a lot more than most people can afford in life. So everybody uses loans, but it is a debt to at least 15 years in a Third World country where the rules change at the whim of those who really rule the country (bankers and wealthy foreigners). Usually people here buy houses anyway because they are too naive (or too stupid) to take into account all these factors, and end up without the money paid and without the house in the first accident to happen (change of employment, unemployment, change of government, etc). Of course you can get lucky and nothing happens to you in your turn to buy, but I honestly do not like to relying on luck.

Short version: It is far more risky in a third world country.

Re:The Internet is turning into War Games

[barc0001]

Funny, I was going to say social media pages. I've never understood this desire to have a constant dribble of personal information posted online.

Re:The Internet is turning into War Games

[sociocapitalist]

Lets put more context. Here a house to get started costs a lot more than most people can afford in life. So everybody uses loans, but it is a debt to at least 15 years in a Third World country where the rules change at the whim of those who really rule the country (bankers and wealthy foreigners). Usually people here buy houses anyway because they are too naive (or too stupid) to take into account all these factors, and end up without the money paid and without the house in the first accident to happen (change of employment, unemployment, change of government, etc). Of course you can get lucky and nothing happens to you in your turn to buy, but I honestly do not like to relying on luck.

Short version: It is far more risky in a third world country.

I actually assumed you were talking about the US, as it seems more or less the same set of conditions.

Whoever came up with this...

[gman003]

has wasted their time.

Problem with Artifical Stupidity: discrimination

[joe_frisch]

Its possible to come up with algorithms that are statistically valid, but discriminatory. For example, in the US African Americans are on average lower income than whites,so it it is likely that average they are less able to repay debts. Anything that correlates with race might statistically be valid, but is racist and if done explicitly would violate all sorts of laws. How do you prove that you are not using proxies for race, or other protected classes in an analysis like this.

Systems that analyze the behavior of friends have a similar problem: people from disadvantaged cultures will have a more difficult time receiving loans, getting jobs etc, not because of what they personally did, but because of what people of their culture did. This is the basis of racism.

Let use some l33t speak

[future assassin]

I was Wa$t3d last night.

Social media?

[Anonymous Coward]

Year by year "social" media seems to get steadily more antisocial. Why use it? You just end up being tracked and profiled like an animal and the information you give away is used by others against you. Why put yourself at such a disadvantage? Why give them that power?

Re:Problem with Artifical Stupidity: discriminatio

[Jack Griffin]

For example, in the US African Americans are on average lower income than whites,so it it is likely that average they are less able to repay debts.

Why is that? If the loan amount was the same that may be true, but there's no reason why a less wealthy person can't repay a similarly small loan, any more or less than a wealthy person with a huge loan.
Rich people go broke too.

Facebook

[the_Bionic_lemming]

I'm one of the folks that knew early on facebook was utter crap and has never had an account. They apparently can't tell the difference between me and my father who haunts facebook.

Just ran a credit check and all three of them have me on my parent's discovery card - of which I never had a discovery card - and in fact don't have any credit cards. Unless you count my debit card - which has no credit.

My fico is low - despite having no late payments to any bills over five years - own a vehicle, in 14 years I'll own my home.I have no other debt other than my mortgage.

I guess if you aren't shoveling cash into credit card providers profits, you aren't credit worthy?

Re:Problem with Artifical Stupidity: discriminatio

[Harlequin80]

Agreed. Income is probably a factor, but net debt, and leverage are probably better indicators.

What does it do to your credit score

[thinkwaitfast]

if you don't have a facebook account?

Re:What does it do to your credit score

[Assoluto]

Probably increases it immensely. It shows you can see that costs of using Facebook are far greater than the benefits it offers. A person who can make such a judgement is likely better at managing their finances compared with somebody who willingly hands over their information in exchange for the opportunity to broadcast aspects of their personal lives to the world.

Re:What does it do to your credit score

[GrandCow]

The article says that it's used to judge people that have never had credit ever. If you already have a credit card, it doesn't really apply to you. I'd say it doesn't apply, but I'm sure there's a variable in an equation somewhere that has an effect but is so minor that it's almost 0 on an account that already has credit.

If you've never had credit ever, then you're subject to the same terms that creditors have always had with new applicants. Get a cosigner, get student account, get a secured CC, get a checking account, and I'm sure there's other ways that I can't think of off the top of my head when I'm 10 minutes from going to bed.

Re:What does it do to your credit score

[tlhIngan]

The article says that it's used to judge people that have never had credit ever. If you already have a credit card, it doesn't really apply to you. I'd say it doesn't apply, but I'm sure there's a variable in an equation somewhere that has an effect but is so minor that it's almost 0 on an account that already has credit.

Basically the creditors are wondering if you're going to be a responsible person. If you already have a credit history - a credit card with a history of on time payments, that's generally a far better predictor of your responsibility with credit than social media.

But if you don't, then seeing your social media profile can provide hints as to how likely you're are to be responsible. Think about it - would you like t loan money to someone who goes on benders almost daily to the point of blacking out, or someone who shows restraint, etc?

Re:What does it do to your credit score

[thegarbz]

It shows you can see that costs of using Facebook are far greater than the benefits it offers.

Really? Tell me the cost and tell me the benefit. The way I see it is exactly the opposite.

Re:What does it do to your credit score

[wienerschnizzel]

Maybe you could create one to game the system the other way around. I just wonder what you'd have to post - probably something like "I just had to pay the interest on my credit card fifth time in a row. Damn, why am I always one day late!". Instant credit score!

Re:Who cares?

[somenickname]

It's not clear whether or not this is a troll but, being able to get a mortgage (and the interest rate of the mortgage) depends on your credit score. So, sure, once you have a mortgage, set a cron job to post "wasted" on your facebook account 3 times a day. Until then you have to do the bizarre credit dance and wonder if maybe one day the credit agency is going to datamine satellite imagery to see if you ever park within 10m of a pawn shop.

So people not using privacy settings...

[Berkyjay]

...are getting burned by publically spewing out their thoughts and life details? I'm cool with that.

Re: So people not using privacy settings...

[lpevey]

Privacy settings control whether the general public sees information. It does prevent Facebook from selling the information for profit (which it does).

Re: So people not using privacy settings...

[lpevey]

Typo: Does should be doesn't.

So nobody read the article, or even the summary

[GrandCow]

"Lansing said FICO is working with credit card companies to use several different methods for deciding what size loans people can handle, and using non-traditional sources like social media allows them to collect information on people who don't have an in-depth credit history. According to the FT, both FICO and TransUnion have had to find alternative ways to assess people who don't have a traditional credit profile -- including people who haven't borrowed enough to give creditors an idea of what kind of risk they pose."

So this has a nonzero effect on your credit score, but for anyone with a legitimate history (aka any credit card or loan ever) the effect will be so small that it would be considered negligible. What the hell do you people want? If I was an employer looking up peoples names on Facebook, like is common these days, and found out that the person was posting pictures of getting high/drunk on a regular basis or posting really horrible comments, I'd refuse to hire them too. The same applies to credit cards. Some random person with no references walks into my bank and says, "Hey give me $1000, I'm good for it". What should my response be, seriously?

"Can you prove in any way that I can depend on you to pay me back?"

If you don't want to be judged by your social profile, make it private or don't fucking post it in the first place.

Re:So nobody read the article, or even the summary

[bhv]

I think it is more of a "slippery slope" issue than just the current plan outlined in this article. What's to stop companies from using your browsing history, gps history and/or the people you hang out with (recurrence of proximity to other tracking sources) to "tweak" your FICO, new or not? The list of sources and calculated outcome impacts are endless.

If protections aren't put in place we need to think about every online act (and we are always online in some way), past and present and how it will impact your unknown future plans. If the banks want this info you know the insurance companies want it too. Imagine auto insurance premiums impacted by how often and/or well you play GTA, or Health premiums impacted by who you hung out with a few too many times as a teen.

It all hurts my head!!! (Crap, that probably affected my rates).

Re:So nobody read the article, or even the summary

[LessThanObvious]

That's where I'm afraid we are headed. Credit scoring should not include subjective non-financial personal information. Exactly because it's a slippery slope. You can find a statistical basis to tie all sorts of random data to likeliness to repay debt, but it doesn't mean that correlation is always present. We should stick to actual non-subjective financially relevant facts.

Imagine someone owned a drug rehab center and they discussed their work on Facebook. Should that person have their credit harmed because they use too many red flagged keywords in their posts? Big Data has huge risks in being able to make associations that may be entirely meaningless without context.

Context...

[sxpert]

obviously this is flawed for so many reasons.
"I just wasted xxx hours at the DMV waiting in line"
probably counts too, I imagine

Re:Context...

[freeze128]

That's ok. It's facebook. Most of the idiots there would probably write "I got so waisted last night" anyway.

Re:Problem with Artifical Stupidity: discriminatio

[Nutria]

How do you prove that you are not using proxies for race, or other protected classes in an analysis like this.

Simple: demonstrate that you also red-line certain white neighborhoods, or show how many white people you decline.

insurance soon, if not already

[dltaylor]

Obviously, if you "wasted" an afternoon, then you are a greater insurance (auto, life, health, ...) risk.

Maybe all top universities should study

[Chrisq]

Maybe all top universities should study Perfection Wasted by John Updike, and encourage online discussion. Just watch the demographic change and the measurement become useless.

Re:Credit is B.S.

[FunkSoulBrother]

It was because he didn't have a proven track record of paying anything off. It makes plenty of sense when you think about it -- they don't know where the hell he got his house or cattle from, but if they see that he's paid a bunch of lenders back for various loans over his lifetime, they can surmise that he will probably pay back theirs, too.

Hm....

[calexontheroad66]

Clearly they have never been to Ireland... Or the UK...

Re:Yes, but they're not discriminating on race...

[TheRaven64]

They might hit problems if the words that they're matching on are correlated with speech patterns from ethnic groups. If you can find a set of words that black people are far more likely than white people to type into Facepalm posts then you can try claiming that it's not racial discrimination if you use them, but good luck convincing a court of that.

Re: Problem with Artifical Stupidity: discriminati

[eibo]

You are quite right to require non-discrimination, thanks for providing this insight, as I would generally accept any method that assesses risks reliably, like having no credit record. Everyone will agree probably, that we are talking about illegal discrimination based on inacceptable grounds, like gender, heritage or sexual preferences. Discrimination based on former ability to pay back loans should be acceptable, also discrimination based on income or presumed job stability, there will be a lot of factors we might accept. If there were factors which looked OK at first, but would in fact be discriminating in favour of straight middle aged white males, we should object to these factors being used, both morally as well as legally. Even with these proxy discriminations ruled out, there will be differences in your groups total loan acceptance rate, but you, as an individual, should get the same evaluation as anyone from any different group in a similar situation. There is a catch though. What if I told you that formerly, in the good old times, when actual people decided on your loan, these people might have been far more racist, mysogynist, homophobe and otherwise preferential than any current algorithm? I deem it rather probable, that any big company trying to earn money by lending money to you is rather more interested in this said money than pushing some ideology into the world. On the other hand there is one additional problem, are we able to evaluate the algorithms? Are we able to spot wilfull incorporation of proxy discrimination? Neural nets might be able to produce good evaluation results, usually they are built with no explanatory component. Expert systems are able to explain, but are we able to understand the explanation. Apparently we need better software, designed to be able to prove it is non-discriminatory. Furthermore, we probably should require this software to be transparent, enabling us, as society, if we think the grounds are acceptable. Thus we could lead discussions like this, is it acceptable policy to deny heavy drinkers a loan.

Re:Social Networks

[TheRaven64]

Social Networks are the graphs of personal relationships. The term has been used in sociology for a long time. Social Media refers to advertising platforms that provide surrogate friends in an attempt to collect the most personal information possible about a person to sell to advertisers and anyone else with spare money. So, yes, please don't confuse them.

Facebook privacy

[Wootery]

But if you lock-down your Facebook account properly, how can they have any idea if you're using the word 'wasted'? Do they pay Facebook for unlimited access or something?

The article doesn't even think to mention this, and I'm surprised no-one here seems to have mentioned it either.

Re:Facebook privacy

[bluegutang]

If you use the word "wasted" AND you are incapable of locking down your FB account, you probably ARE likely to default on your debt.

Re:Facebook privacy

[MTEK]

B2B web service API. GetAllWastedUsers().

Re:Facebook privacy

[MobyDisk]

THIS IS A REALLY IMPORTANT QUESTION! How can the article not address this?

Do they pay Facebook for unlimited access or something?

I can think of a few ways:

First, if you install any Facebook games/apps, they mine your data. I believe that is the entire purpose of them. You would have to read the individual EULAs to see what they gather. This seems like the easiest way because they can get everything.

According to this article from 2012 "Facebook is Using You" they do give out aggregate data, which can affect your credit score.

Your application for credit could be declined not on the basis of your own finances or credit history, but on the basis of aggregate data — what other people whose likes and dislikes are similar to yours have done. If guitar players or divorcing couples are more likely to renege on their credit-card bills, then the fact that you’ve looked at guitar ads or sent an e-mail to a divorce lawyer might cause a data aggregator to classify you as less credit-worthy. When an Atlanta man returned from his honeymoon, he found that his credit limit had been lowered to $3,800 from $10,800. The switch was not based on anything he had done but on aggregate data. A letter from the company told him, “Other customers who have used their card at establishments where you recently shopped have a poor repayment history with American Express.”

Re:Facebook privacy

[MobyDisk]

I thought of that two, but I don't know what is in those Facebook APIs. Can you actually do this? Who do they give access to it? How would they tie that to a social security number?

Re:Facebook privacy

[gsslay]

It's more of a two step process. First you have to be insane enough to have effectively a public facebook profile, open to credit rating companies to browse, and secondly say "wasted" in your updates.

It's a close run thing, but I'd say the first step is more an indication of a bad risk.

Re:Facebook privacy

[nitehawk214]

Or allow one app. But then again, playing farmville should count against your credit score.

Re:Facebook privacy

[david_thornley]

I don't bother with privacy settings. I completely don't trust FB to keep my stuff secret, so I just let everybody see it and don't put anything on my account that I'd be embarrassed to let anyone see.

Re:Facebook privacy

[bhv]

For a price Facebook and any other online, gps, browsing, cookie monster.......whatever kinda data collecting company would gladly cough up the needed info. This is about data mining not page scraping and your privacy settings are therefore irrelevant. Read the ever changing EULAs we agree to for every site/service we sign up for, especially the "FREE" ones.

It's been said a million times but bares repeating over and over still. "You are not a customer, you are a commodity". Banks, Insurance companies, employers and so many more that fork over the $$$ are the customers.

Re: Problem with Artifical Stupidity: discriminati

[james_gnz]

Apparently we need better software, designed to be able to prove it is non-discriminatory. Furthermore, we probably should require this software to be transparent, enabling us, as society, if we think the grounds are acceptable.

I expect the algorithms are likely to be closely guarded secrets, because they are surely a big part of the way credit companies try to gain an edge over each other.

Thus we could lead discussions like this, is it acceptable policy to deny heavy drinkers a loan.

It sounds reasonable to me. It seems likely that it would be a predictor of the ability to repay debt, and it's something that, in some sense, people have the ability to choose, leaving them in control of the outcome.

With regard to race, I would be surprised if it was a useful predictor of the ability to repay debt. It would be a losing proposition to offer credit to someone solely on the basis of their race, and if credit history was available, I can't imagine that a person's race would usefully supplement this information in any way. Not that this would necessarily stop people from using it though, I guess.

Division of Responsibilities

[tinkerton]

There's this plausible view of the future where everything you say and write will be monitored and processed, and will be followed up with actions. Those who perform the actions will have no responsibility for it. If their actions are unsuitable it's not their problem. You should have controlled your words better to avoid triggering action. It doesn't matter how good or bad their filters are, you just have to adapt.

It could be different. Imagine a future terrorism watchlist where you're able to sue for damages just for being listed there. Those maintaining the watchlist better watch out. They can't afford many false positives. Also, you can send out a lot of ambiguous messages. It's their responsibility not to be misled, not yours. If they're wrong, they pay through the nose. If you take a plane they can x-ray your belongings - if they're willing to pay the price. If they're wrong, it costs them. You can even say you're carrying lots big bombs, they still pay. You're not responsible for them not seeing a joke, even a bad one.

That should illustrate how responsibility is currently being divided between those being monitored and those doing the monitoring. This division of responsibility doesn't seem problematic when you have a small commercial company offering its services on a free market. It becomes ugly whenever the organisation doing the monitoring has power over you. It doesn't even have to use it.

It does

[rsilvergun]

because you're not buying a Car and a House, which are both debt. These are things every person wants. Used cars break down a lot (I'm stuck driving a clunker, so I speak from bitter experience). With few exceptions nobody who can afford it doesn't buy a new car every 3-5 years because of this. As for a house if your an American you don't rent because you want the equity on the home. Also, that equity is a large part of what improves your credit score

Now, you might still be low risk. You might live next door to your job and not like travel (or travel without a car). You might have a job in San Fransisco and not be able to buy a house For the car they can't tell and for the house they know you're pissing away equity. They don't care why in either case.

Re:It does

[tepples]

Used cars break down a lot

Even if you buy Certified Pre-Owned and do all scheduled maintenance per its owner's manual?

Re:It does

[Cederic]

People that maintain their own cars/motorbikes seem to need far more frequent maintenance.

This just..

[hilather]

Wasted my time.

Car & House

[rsilvergun]

The trouble is you're not buying a car and another house. Old cars break down a lot. For most people they start getting little nuisances at the 3-5 mark and getting stranded at the 7-10 mark. So for most folks not buying a car every 3-7 years is a sign of something not right. As for houses, you're not building any equity. Property is too good an investment opportunity to pass up for people who aren't millionaires. If you're having trouble with credit you're probably not a millionaire :P.

Re:Car & House

[operagost]

So for most folks not buying a car every 3-7 years is a sign of something not right.

Yeah, I bought a truck 3 years ago... with CASH.

That ain't right!

Re:Car & House

[nitehawk214]

You are buying the wrong kind of car.

Re:Car & House

[Alumoi]

So for most folks not buying a car every 3-7 years is a sign of something not right.

Yeah, I bought a truck 3 years ago... with CASH.

That ain't right!

Cash? Are you a terrorist or something? Don't you know you MUST use a credit card with every single purchase? Do you want to ruin the economy?

Re:Car & House

[fropenn]

Property is generally not a good investment. If you want to invest in property you can invest in mutual funds that buy up mortgages, real estate (mostly commercial), etc. But thinking of your own home as an investment is a mistake because it's a bad one (low returns and very high cost of ownership, taxes, insurance, etc.).

Terms may not allow overpayment

[tepples]

Also if you want to but a bicycle for $1100 and your credit limit is $1000 then just go an pay $200 into the account *BEFORE* you buy the bike, that way your account won't exceed the credit limit.

That depends on whether the terms of use of your credit card account allow payments in excess of the current balance. I've read mine, and they happen not to.

Threaten to use a debit card

[tepples]

Buying a $1,100 bike on a $1,000 card may require presenting both carrot and stick:

1. Open a checking account at both the bank that issued your credit card and some other bank other than the bank that issued your credit card. For example, if you have a Visa card through JPMorgan Chase Bank, you might open an additional checking account at Ally.
2. Deposit $1,100 plus the minimum balance to avoid a monthly service fee into each of the checking accounts. A linked balance might satisfy the issuing bank's automated creditworthiness tests. This step requires not living from paycheck to paycheck, but buying a $1,100 bike instead of a $22,000 car is one way to build up enough savings to pull this stunt.
3. A week before the purchase, telephone customer service of the issuing bank: "I'm about to buy a one thousand one hundred dollar bike from $merchantname on $merchantstreetaddress. I believe my checking balance here clearly shows my ability to pay. Otherwise, I could pay with my $otherbank card, and $otherbank will get the swipe fee, not $issuingbank." You don't need to tell the issuing bank that the other bank's card is a debit card.

Re:Threaten to use a debit card

[tlhIngan]

You don't need to tell the issuing bank that the other bank's card is a debit card.

Why? Debit cards incur a swipe fee as well. not as much as a credit card, but they still have fees.

Usually the merchant and the customer pay around 25 cents each - yes, debit dings both - the amount charged to you is bumped up by 25 cents, and the merchant pays 25 cents. Unlike a credit card, the merchant rarely pays a percentage of the transaction cost. And the bank may decide they went over the number of transactions for the month, so the account gets dinged a $1 per transaction overage fee, etc. etc. etc.,

Re:Threaten to use a debit card

[Khashishi]

I doubt that your small purchase is going to attract the attention of a worker with a high enough rank to care about your situation.

Re: Threaten to use a debit card

[LordKronos]

If your account is getting charged $0.25 / debit then either you don't live in the US or you need to get a new bank. In the US the fee used to be about $0.40 but a few years ago Congress capped it at $0.21 and I've never heard of a bank making you pay part of that fee (though some merchants will). In fact some banks will even split that fee with you. If you get a Discover checking account, for example, they will give you $0.10 cash back / debit

Swipe fee

[tepples]

Getting a bigger credit limit only to use it for larger payments just means you cost them more.

This biased source claims the opposite: $3 of every $100 you spend goes to the banking industry. In fact, American Express started out without revolving credit at all, instead requiring cardmembers to pay in full each month and relying on these swipe fees.

Re:Swipe fee

[mjtaylor24601]

Getting a bigger credit limit only to use it for larger payments just means you cost them more.

This biased source claims the opposite: $3 of every $100 you spend goes to the banking industry. In fact, American Express started out without revolving credit at all, instead requiring cardmembers to pay in full each month and relying on these swipe fees.

As I understand these things (and I could well be wrong) most credit cards involve two different parties, the transaction processor (eg VISA) and the lending institution (eg your bank). The $3 (or whatever) transaction fee goes to the transaction processor for handling the transaction. The interest payments (if any) go to the lending institution (for actually putting up the money that gets loaned out).

So it's true that VISA would probably love for you to have a bigger credit limit as a higher limit means you're more likely to make additional purchases and thus garner them more transaction fees. However the lending institution is the one that decides what your credit limit is because they're the ones that have to front the money and take the risk of default. And since the lending institution makes their money off interest payments, and if you're constantly paying off your entire balance they make no interest, a higher credit limit is just increased risk for them with no benefit.

Re:Swipe fee

[thoromyr]

I actually got an offer for one of those early Amex cards. I don't know this for a fact, but I believe they stopped their "revolving credit" business because it was illegal. How so?

They claimed to not be a credit card so they felt that usury laws did not apply. Specifically, their terms did not specify an APR -- they claimed to not be making a loan. Instead, they charged 4% of the balance as a "fee". 4% monthly is a 48% APR -- well beyond usury (when I was in Georgia, usury was around 30% -- I knew someone who bought a car where the overzealous salesman miscalculated and accidentally set the purchase price too low for the payments so that it was usurious and post-sale the payment had to be reduced).

IANAL, but if it looks like duck... no citation, but I believe there was either legal action or someone at Amex got nervous and they stopped the pretense of not being a lender -- and their "fees" or APR had to be reduced to non-usurious levels.

Re:Swipe fee

[ewibble]

Just note if it is 4% per month compounded, it is 60% APR not 42%. That is you borrow $100 at the beginning of the year, pay nothing off you will owe $160. (assuming no penalties)

Re:Swipe fee

[tehcyder]

Wow, do you actually have anti-usury laws?

Here in socialist Britain a certain payday loan company used to charge 5 853% APR [*] (although they have now slashed that to 1 509% because of the unflattering publicity).

[*] Yes, over five thousand per cent.

Loans for the high school to university transition

[tepples]

my understanding of the way it works here in France is that banks, et. al. can lend you as much as they choose to but they can't collect debt that you can't pay if they've loaned you more than you can pay back with 30% of your income. End result is that the banks balk at lending that exceeds that 30% soft limit.

Then how do student loans work? Where I live, child labor laws ensure that someone fresh out of high school (which the French call lycée ) is unlikely to have enough work experience to have a large enough income to afford a loan to pay for university.

Re:Loans for the high school to university transit

[sociocapitalist]

my understanding of the way it works here in France is that banks, et. al. can lend you as much as they choose to but they can't collect debt that you can't pay if they've loaned you more than you can pay back with 30% of your income. End result is that the banks balk at lending that exceeds that 30% soft limit.

Then how do student loans work? Where I live, child labor laws ensure that someone fresh out of high school (which the French call lycée ) is unlikely to have enough work experience to have a large enough income to afford a loan to pay for university.

Sit down first...

University is almost free here, so there is no need for student loans.

Which companies require failbook?

[tepples]

Which companies require a Facebook account, and for what positions other than social marketing? And are these companies that Slashdot users would want to work for, compared to companies that find employees through LinkedIn or Stack Overflow Careers?

Re: Problem with Artifical Stupidity: discriminati

[joe_frisch]

I think it is a very general problem with machine decision-making. We have laws that prevent using certain protected characteristics (race, gender, etc) in hiring, loan, housing or other decisions). An automated decision making system could act on things that were proxies for these protected characteristics in a way that would not be immediately obvious. This provides a way for organizations to (intentionally or not) get around anti-discrimination laws.

Rewards card

[tepples]

The $3 (or whatever) transaction fee goes to the transaction processor for handling the transaction. The interest payments (if any) go to the lending institution (for actually putting up the money that gets loaned out).

Not all of the transaction fee goes to the transaction processor. A fraction goes to the lending institution. And it is from this fraction that lending institutions are able to offer cash back or travel rewards to those cardmembers most able to repay.

Re:Rewards card

[mjtaylor24601]

Not all of the transaction fee goes to the transaction processor. A fraction goes to the lending institution. And it is from this fraction that lending institutions are able to offer cash back or travel rewards to those cardmembers most able to repay.

That sounds highly plausible. Never the less it may still not be worth it from the perspective of the lending institution to give you a higher credit limit if you are regularly not paying them interest. The amount they make from their cut of the transaction fees might not make up for the increased cost of default, especially if , as you say, some portion of those fees goes back to the card holder in the form of cash back or perks.

Also worth noting that sometimes the "bonus reward points" you're getting are being offered "free" by a third party (eg the Air Miles people) strictly so that they can gain access to your purchase history for marketing purposes.

Re:Yes, but they're not discriminating on race...

[joe_frisch]

Imagine that members of a particular ethnicity are on average less likely to pay their debts. If a person is of that ethnicity, I do not believe that it is desirable (or legal) to deny them loans based on that ethnicity - that should only be done based on their individual ability / likelyhood of paying.

A fair system might still result in fewer loans to people of some ethnicity, but that would be due to the behavior or the individuals, not due to their group membership.

Re:Credit is B.S.

[jratcliffe]

And, more than 1/3 of a year's net salary in the bank... hmm

That means you have about half of a reasonably-sized emergency fund. Not hugely impressive.

social contact is probably a positive indicator

[anyaristow]

Having non-anonymous social contact with real-world people probably positively correlates with being able the repay a loan, so the credit scorers would probably disagree with you.

OT anyone?

[cellocgw]

I just skimmed the first 150 or so posts, and Not One discussed Facebook, "wasted," or credit bureaus snooping Facebook.

How about we save the discussions of credit bureaus and credit card companies' methods of maximizing profits and get back to the actual FA?

Cap on Cirrus and Plus transaction fees

[tepples]

it may still not be worth it from the perspective of the lending institution to give you a higher credit limit if you are regularly not paying them interest.

If a lending institution gives me an $800 credit limit and denies me an increase to buy an $853.86 TV, it won't see its share of the swipe fee on that purchase. Instead, I'm more likely to buy it with a checking account through the Cirrus or Plus debit card network, which has a much lower swipe fee, and probably even from another bank on principle.

So much for my new Facebook account

[ReadParse]

I scour the internet for stories about people who aren't thrifty with their money and responsible with their debt. Each time I post, I end with "Another wasted opportunity to save and pay down debt."

No wonder my credit score has suffered. Man, if only I was as smart as those guys.

Re:How

[bhv]

FAIL: Read the EULA, you don't even own the pictures you post. This has nothing to do with your privacy settings. Outside companies aren't getting access to your facebook page or postings directly. Facebook collects, compiles and sells to whoever is paying. They don't even have to give the data directly, that's worth to much money. Just postulating here, but in this case I could see the Credit Companies providing an algorithm for Facebook to run against the data and it could simply provide a return code between 1 and 100, which in turn could be used as a +/- against your FICO. No laws broken because no personal data was exchanged.

You did get to sign up for FREE didn't you? Page ads aren't what makes FB a multi-billion dollar company.

FICO and other financial institutions can blow me

[nensondubois]

The people who work at these financial institutions are all whores anyway. Put that on your profile.

let's see...

[dkuznetsov]

It would be interesting to know how much money they wasted on this stupid idea of counted the wasted word... OMG my credit score is dropping while I'm typing this in. So much good credit scored has been wasted. Oh, no, again!

See what using your real name does ?

[ToddInSF]

It's nice to see this and feel a smug sense of vindication.

Collection agents

[NewYork]

Sometime back I read that Collection agents are using FB to track customers;

What a waste!

[treczoks]

So if one is e.g. discussing how much money the government wasted, and wasted, and wasted again will lower the posters credit score? Primarily, the money was wasted on the banks that use the customer scoring in turn.