Interest Rate and Credit Score

[Ms.Minnie]

Curious what others think. How do you feel about the idea of people who have high credit scores being penalized by having to pay a higher rate of interest so that people with lower credit scores can get a lower rate of interest?

So, you have two people applying for credit, one who regularly pays their bills on time and according to the terms of the loan, with a high credit score for that reason. The other person has low credit scores because they don’t pay their bills on time or according to the terms of their credit obligation. Should the first person be penalized by having to pay a higher rate of interest so that the person with lower credit scores can get a lower rate of interest?

Typically, a person who has a good or high credit score gets a more favorable credit rate as opposed to the person with low credit scores. One is considered a good credit risk while the other is considered a risky or poor credit risk. I guess it’s a way to reward the person who pays bills on time. Lenders do favor the persons with higher credit scores with better rates, it’s like the less you need the money the better the rate of interest.

So, what do you think? Is it fair to increase the interest rate on the person with good credit and lower the interest rate for the person with poor credit and why?

 

[Kennywood]

This is so screwed up. You play by the rules, you pay your bills, you try to live within your means.....and you're penalized. This pattern is showing up in other areas of the country.

 

[MillauFr]

Private banks are free to charge any rate they want. The government can't control what rates they charge. I fully expect that borrowers to exploit any loopholes to get the best rates possible. If banks charged someone with an 850 credit score a higher rate than someone with a 650 credit score then borrowers would simply start paying their credit bills late for a few months in order to reduce their credit score to 650.

 

[MillauFr]

This isn't rocket science. You simply figure out which credit score gets the best rates and take actions to move towards that credit score.

 

[RamblingMad]

I looked at the numbers today from Fannie Mae. The impact is roughly an eighth of a point for good credit. But this goes away if you have at least 25% equity. More fearmongering.

Matrix before:

https://singlefamily.fanniemae.com/media/33201/display

Matrix after:

https://singlefamily.fanniemae.com/media/9391/display

 

[MillauFr]

I looked at the numbers today from Fannie Mae. The impact is roughly an eighth of a point for good credit. But this goes away if you have at least 25% equity. More fearmongering.

You mean the media didn't publish the full truth here and doctored up the story in order to stir people up? Shocked I say. I am shocked.

 

[jrmasm]

Cool! Another dog whistle thread!

 

[RamblingMad]

You mean the media didn't publish the full truth here and doctored up the story in order to stir people up? Shocked I say. I am shocked.

The impact is the difference between the two schedules I posted. It’s still up to the lender for how they pass the cost on. This is what Fannie charges for MBS.

It’s far too complicated for the news to accurately report on it. But it’s easy to spin it to get people angry.

 

[Traveling on cc points]

Curious what others think. How do you feel about the idea of people who have high credit scores being penalized by having to pay a higher rate of interest so that people with lower credit scores can get a lower rate of interest?

So, you have two people applying for credit, one who regularly pays their bills on time and according to the terms of the loan, with a high credit score for that reason. The other person has low credit scores because they don’t pay their bills on time or according to the terms of their credit obligation. Should the first person be penalized by having to pay a higher rate of interest so that the person with lower credit scores can get a lower rate of interest?

Typically, a person who has a good or high credit score gets a more favorable credit rate as opposed to the person with low credit scores. One is considered a good credit risk while the other is considered a risky or poor credit risk. I guess it’s a way to reward the person who pays bills on time. Lenders do favor the persons with higher credit scores with better rates, it’s like the less you need the money the better the rate of interest.

So, what do you think? Is it fair to increase the interest rate on the person with good credit and lower the interest rate for the person with poor credit and why?

I had to do a google search to find out what you were referring to.

Luckily we built our home last year and it is most likely our forever home so this won’t affect me but I think it is ridiculous to penalize people who have had discipline their whole life’s to maintain a great score.

I taught my daughter about the importance of her score at a very young age. I added her as an AU in several of my credit cards when she was 6 years old to start building her credit profile.(I think they closed this loophole) I told her that when she grows up and she only had enough money to buy food or pay a reportable bill to pay the bill and come to my house for dinner. She is now 22 with an 830 score with 2 credit cards of her own.

 

[Genie+]

The whole industry is a racket. The list is endless so I just file it under things I cannot fix and instead spend the energy seeking the best choices for my family. Sounds glib but there’s shenanigans happening throughout the system and no matter who you are some are biting you. In that respect we’re all equal.

 

[RamblingMad]

The whole industry is a racket. The list is endless so I just file it under things I cannot fix and instead spend the energy seeking the best choices for my family. Sounds glib but there’s shenanigans happening throughout the system and no matter who you are some are biting you. In that respect we’re all equal.

This should make you either laugh or cry.

https://williamhgross.com/wall-st-playbill/

 

[kerry1379]

But...but that is literally what the credit score is, right-how much of a loan risk are you based on your past behavior. There is a reason those with higher scores have higher scores and those with lower scores have lower scores. Why have a score at all then?

 

[Genie+]

This should make you either laugh or cry.

https://williamhgross.com/wall-st-playbill/

That’s great! I prefer to laugh.

And when I want to cry I just think on a global scale this side of the grass is pretty green.

 

[GAN]

Curious what others think. How do you feel about the idea of people who have high credit scores being penalized by having to pay a higher rate of interest so that people with lower credit scores can get a lower rate of interest?

So, you have two people applying for credit, one who regularly pays their bills on time and according to the terms of the loan, with a high credit score for that reason. The other person has low credit scores because they don’t pay their bills on time or according to the terms of their credit obligation. Should the first person be penalized by having to pay a higher rate of interest so that the person with lower credit scores can get a lower rate of interest?

Typically, a person who has a good or high credit score gets a more favorable credit rate as opposed to the person with low credit scores. One is considered a good credit risk while the other is considered a risky or poor credit risk. I guess it’s a way to reward the person who pays bills on time. Lenders do favor the persons with higher credit scores with better rates, it’s like the less you need the money the better the rate of interest.

So, what do you think? Is it fair to increase the interest rate on the person with good credit and lower the interest rate for the person with poor credit and why?

Are you serious? That’s the most bizarre thought I’ve heard in a long time…

 

[RamblingMad]

But...but that is literally what the credit score is, right-how much of a loan risk are you based on your past behavior. There is a reason those with higher scores have higher scores and those with lower scores have lower scores. Why have a score at all then?

If you’re rich and can buy everything in cash, they don’t really matter other than for utilities.

The historic problem is red lining and unfair lending. The credit score models try to even the playing field. But they have bias because of the data they’re trained on.

All these changes are doing is reduce the cost to the lenders to make loans on consumers with worse credit. But we’re in a credit tightening cycle now anyway, so it’s a little late.

However, everyone across scores are much worse today due to inflation. But that effect isn’t captured yet because it’s a fairly new event. It will take a couple of years for today’s credit performance to make it into the models.

 

[DLgal]

Cool! Another dog whistle thread!

The other one was getting too long.

 

[MillauFr]

Luckily we built our home last year and it is most likely our forever home so this won’t affect me but I think it is ridiculous to penalize people who have had discipline their whole life’s to maintain a great score.

How will you be penalized? You just need to figure out to game the system and adjust your score accordingly. It is very easy to lower your score if need be.

 

[Dan Murphy]

Is it fair to increase the interest rate on the person with good credit and lower the interest rate for the person with poor credit and why?

Where is this done? I'm not aware of this.

 

[mom2rtk]

Where is this done? I'm not aware of this.

Hasn't started yet. Coming soon.

 

[mom2rtk]

I looked at the numbers today from Fannie Mae. The impact is roughly an eighth of a point for good credit. But this goes away if you have at least 25% equity. More fearmongering.

Matrix before:

https://singlefamily.fanniemae.com/media/33201/display

Matrix after:

https://singlefamily.fanniemae.com/media/9391/display

So you're saying anyone with less than 25% equity will indeed be paying more with good credit. On top of already higher interest rates.