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Author: jrr7 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 665  
Subject: Re: Change the rules? Date: 2/14/2000 6:54 PM
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There's been discussion on our Credit Card board about credit scores being a very closely guarded secret by lenders.

Can you explain why it's so secretive? Why can't consumers easily find out their score?


Big corporations usually don't do things without a reason, and the reason is usually A - "It makes money." or B - "It keeps us from losing money." or C - "It keeps customers with us instead of having them go to our competitors."

Applying these ideas to the present conversation, we also note what falls into these categories.
Lenders want A - to charge the highest rates possible, B - to prevent nonpayment of debts, C - attract & retain customers.

How can they use credit scores for these purposes?
Nonpayment - easy. If previous credit report shows patterns of risky practices, deny them credit.
In this case, at least, past performance is a very good predictor of future results. However, this predictive ability is contingent on nobody finding out about it. If someone did find out how scores were calculated, they could tell someone who is a risk how to artificially inflate their credit score (presumably without altering the person's riskiness). Thus, letting out the info about how it works decreases the method's utility.

Charge high rates - If a customer is risky (but not so risky that they'd default) you have an excuse to charge them higher rates.
If a customer is not risky, you can only charge them high rates if they can't (or don't) look for credit anywhere else. If he knows his credit score is good, he'll either call up and demand low rates, or he'll go to a competitor and get the low rates. Thus, in order to charge high rates, prevent the customer from knowing his score.
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