Question:
Also why is it that the lower your score, the higher intrest rates you get? You would think that if you're having a hard time financially, people would help you out by making your payments low - not extremely high?
Answers:
FICO (Fair Isaac CO) was founded in 1956 and delivered the 1st scoring modle in 1970. It wasn't until 1982 that it was widely used though.
Your FICO score determines your credit worthyness. Interest rating is based on the risk to the bank that you may or may not pay them back...so if you have bad credit worthyness (a low score) they are going to charge you more interest because there is a greater posibility you will not pay them back...it is their way of recouping a loss they haven't sustained. It is perfectly legal and just. Banks are not here to make it easier for us to pay...if I made all of my payments on time and spent wisely I would have a total fit if I found out my bank gave a lower rate to the guy down the street becuase his credit is bad and he has a lot of bills so he needs to pay less interest so he can make his payments more easily!
Cause they dont trust you to make them payments on whatever you buy. they are right tho most folks dont be paying there bills ya know who i mean!
It comes from the insurance concept. People with lower accident or death risk get better insurance rates. Fair Isaac Corporation extended that idea to credit.
well, our economy is based on making the poor stay poor. Creditors view all people with low credit scores the same way. They don't take cases individually. So, if you have a low credit score, they figure it's your fault and they feel it's not their responsibility to help you build your credit score. So, if it's low, you pretty much have to eat it for about 5 years while paying an exorbitant amount in interest rates just to build a good credit score so you can be taken seriously.
wow, am I bitter?
intrest rates are high for people with bad credit because the co. doing the lending has to put out more time effort and money to collect the debt. It is also riskier that the creditor will never see payment.
I think credit became a household inovation with the automobile. People want thingsthey can't afford and buying them keep the economy moving.
So people with good credit typically get breaks in interest because they usually don't really need the credit at all. Its a way of the co to ensure that they get the purchase. Credit cards often charge co's who accept their card as payment for each transaction. making it free for the consumer, but the co. pays the fee... thus making credit card co's go after people with good scores. The more credit you have and use, the richer they get.
Timeline
1958 - Fair Isaac starts building credit scoring systems.
1970 - First credit card scoring system delivered.
1975 - First behaviour scoring system to predict credit risk related to existing customers.
1981 - Introduction of Fair Isaac credit bureau scores.
In the United States, a credit score is a number between about 300 and 850 (between 620 and 780 in the median 60% of cases) based on the statistical analysis of a person's credit report, to represent the creditworthiness of that person—the likelihood that the person will pay his or her debts. A credit score is primarily based on credit report information, typically from the three major credit bureaus.
Lenders, such as banks and credit card companies, use credit scores to evaluate the potential risk posed by lending money to consumers and to mitigate losses due to bad debt. Using credit scores, lenders determine who qualifies for a loan, at what interest rate, and to what credit limits. The use of credit- or identity-scoring before authorizing access to or granting credit is an implementation of a trusted system. While the most widely known score in the United States is FICO (the most widely used in the mortgage industry), there are many others, such as NextGen, VantageScore, and the CE Score
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