Thursday, November 27, 2008

Pricing for Risk

The rate on your card is supposed to be reflective of the amount of risk you carry with a credit card company. Priced out because they know a certain amount of people within a given set of demographics is likely to default. For example if you have bad credit you might pay 25% on your card because people with the same credit criteria as you have shown that x amount of people in x(y) population are likely to default this way the credit card can cover the losses of people in this group who will not pay.

In essence they are covering their risk of loss by charging you a higher interest rate.

But what if they can't lose? What if no matter what they can garnish your wages, have you pay for their legal fees etc..? What if they can't lose? Then aren't you being ripped off paying a high interest rate to begin with?

So they are charging you for risk they don't really have.


Sarah said...

i've got an extreme bias, so i will simply say this: if you don't like the rules, don't play the game. you're right, it's not fair, but it's business.

Rocketstar said...

They actually love people who don't pay them, especially now with the recent Bankruptcy bill passed 2 years ago?

I just watched the documentary "maxed Out", it was good, not great but really showed how the credit card companies now have people over a barrell.

But as Say Rah says, you don't have to play the game.

Ma said...

Credit Card companies are the devil incarnate! They are pure evil and their "game" as some of you call it is really a horrid trap designed to suck the life out of innocent people who, though supposedly have a choice in the matter, often only play this "game" in order to keep their families alive or just try to keep up with the other silly "game" we play called "The American Dream".
My own personal experience with these devlish business people recently leaves me very biased. I really think that businesses run as unfairly as theirs should be illegal. It is completely unfair and ridiculous that the very credit card company that leaves me with barely enough money to feed my family every month because I am responsibly dedicated to making my monthly payments is getting bailed out by the government while I have to find a way to cut corners and live without certain basic needs in order to pay them my hard earned money every month. What the government should do is bail out all of us small folks so that we have enough money to turn around and pump back into the economy to help keep it all afloat. Those measly stimulis checks are just a joke - where's my billion dollar bailout?!
It makes me sick.

Brian in Mpls said...

Lucky for me I no longer have the credit to play the