4 ms·

Because they are lower risk. And really, it's not so much because they are rich, but they tend to be the part of the population with a better record with their

Because they are lower risk. And really, it's not so much because they are rich, but they tend to be the part of the population with a better record with their credit. If you have good credit and are relatively poor you can still get a low interest rate. I really don't understand why people don't get this. If you have $100 to lend and want a return on your investment and you had to charge everyone the same interest rate, would you lend it to the person with better credit or worse? Obviously better credit. So if you want to lend to the person with worse credit you are going to charge them more because of their history they will default more. The risk is priced in to the interest rate.

toomuchtodo 11y ago
> I really don't understand why people don't get this. If you have $100 to lend and want a return on your investment and you had to charge everyone the same interest rate, would you lend it to the person with better credit or worse? Obviously better credit. So if you want to lend to the person with worse credit you are going to charge them more because of their history they will default more. The risk is priced in to the interest rate. Because credit isn't an indicator of future repayment (income is more so). The amount of people who defaulted on their home mortgages when they were underwater after the housing collapse who also had good credit prior is not insignificant.
- res0nat0r 11y ago
  Payment history is a large part in determining your credit score. http://www.myfico.com/crediteducation/whatsinyourscore.aspx http://www.myfico.com/crediteducation/whatsinyourscore.aspx
- meritt 11y ago
  Credit score is indeed an indicator of future repayment. That's the entire point of it. It's an index score indicating the likelihood a lender will see their return. Anyway, they defaulted because they were underwater on the mortgage. When you owe 50% more than your home is even worth, bankruptcy looks like a viable option for many people. Same reason lots of people sold their 401k/IRA/investments. Fear has a fun way of becoming self-fulfilling.
- thedufer 11y ago
  Good credit doesn't mean no risk of defaulting; it means less risk. Fewer of the people with good credit defaulted than of those with bad, which is the only thing a credit rating really claims. Credit rating is explicitly intended to be an indicator of future repayment. That's the whole point of the system.

toomuchtodo 11y ago

> I really don't understand why people don't get this. If you have $100 to lend and want a return on your investment and you had to charge everyone the same interest rate, would you lend it to the person with better credit or worse? Obviously better credit. So if you want to lend to the person with worse credit you are going to charge them more because of their history they will default more. The risk is priced in to the interest rate. Because credit isn't an indicator of future repayment (income is more so). The amount of people who defaulted on their home mortgages when they were underwater after the housing collapse who also had good credit prior is not insignificant.

res0nat0r 11y ago
Payment history is a large part in determining your credit score. http://www.myfico.com/crediteducation/whatsinyourscore.aspx http://www.myfico.com/crediteducation/whatsinyourscore.aspx
meritt 11y ago
Credit score is indeed an indicator of future repayment. That's the entire point of it. It's an index score indicating the likelihood a lender will see their return. Anyway, they defaulted because they were underwater on the mortgage. When you owe 50% more than your home is even worth, bankruptcy looks like a viable option for many people. Same reason lots of people sold their 401k/IRA/investments. Fear has a fun way of becoming self-fulfilling.
thedufer 11y ago
Good credit doesn't mean no risk of defaulting; it means less risk. Fewer of the people with good credit defaulted than of those with bad, which is the only thing a credit rating really claims. Credit rating is explicitly intended to be an indicator of future repayment. That's the whole point of the system.