>
Date: Thu, 14 Nov 2002 00:36:33 +0900
X-Mailer: QUALCOMM Windows Eudora Pro Version 4.2.0.58.J
All these explanations seem to make sense. But there are two problems:
- Somebody without any credit history (i.e. no positive and NO NEGATIVE
information) is in many cases not acceptable. So it is very difficult
to start.
- The whole system seems completely limited to the US. This has some
privacy benefits for consumers, but seems hopelessly narrow-minded.
Regards, Martin.
At 17:48 02/11/12 -0500, Hermann E Schwyn wrote:
>To answer your question on the benefit of having credit history..
>
>Using credit history to quantify risk benefits both the financial
>institutions and the customers.
>
>Everyone who has any type of credit product (credit cards, auto loans,
>mortgages, installment loans, etc.) is reported to the credit bureaus. The
>information reported is both negative and positive. The information available
>to financial institutions from the credit bureaus can be divided into:
>
>* type of credit products
>* length of your relationship with other financial institutions
>* credit lines/balances
>* payment/delinquency history, and
>* your search for credit
>
>With all these information, financial institutions develop statistical models
>to forecast your probability to default your loan (measures risk). These
>statistical models are what they call FICO Score, Beacon, etc.(generic scores
>generated by the bureaus), but most banks have their own custom models.
>
>What financial institutions do with the score changes from one institution to
>another, but they can be summarize as follows:
>
>1) if you pass a certain cutoff score you are approved for what you applied
> for (credit card, mortgage, etc.)
>2) if you did not pass the cutoff score but are within some range and meet
> certain requisites you might get approved
> but with a higher interest rate
>3) if you are in the top scores you might even get offer a lower interest
> rate
>
>These models are also used in collections, account maintenance (increasing
>your
>credit line), cross-selling, and relationship management.
>
>Financial institutions manage the risk in their portfolio and customers get
>different interest rates.
>
>For a foreigner with no credit history this seems a bit unfair, but after you
>are part of the system and you know how to use it (pay on time, manage your
>loans), you will start getting offers for higher credit limits and lower
>interest rates.
>
>I am biased to the topic since I developed scorecards for Citibank-Colombia
>(credit bureaus are used outside the states also), and now work as a
>consultant
>developing models.
>
>Hope this help.
>
>Hermann E Schwyn
>Manager, Modeling and Analysis
>Karma Group
>(954) 341-6488
>hermann.schwyn_at_karma-group.com
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Received on Wed Nov 13 2002 - 17:08:52 PST
