Bad credit application methodology

Whenever I recognize where a part of world is such that we can’t access something when we most need that something, and–worse–that we have best access to that thing when we least need it, I am confused. This kind of situation seems wrong.

So this brings me to a small example of such a paradox: the credit credit card application process. I don’t understand why the consumer credit application process is not more sophisticated in the sense that credit card companies can issue credit cards soley to refinance (a.k.a transfer) a balance from another card, allowing the individual who most needs a lower interest rate to gain access to that lower rate. this I what I wanted to do with one of the banks that i do business with a couple of days ago. Unfortunately, for me and the bank that could have not only gained my business but taken it away a competitor, the customer service representative who was taking my application was unable to specify anywhere in my application that the application was not be submitted to increase my total credit, but rather that it was being used merely to replace an existing credit account. Thus, although the risk profile would have actually improved upon securing a less expensive (i.e. lower interest and financing fees) credit account, the bank denied my application, because it could only assume that I was applying for the credit card because my other two cards were maxed out.

To a degree, I understand why lenders have to charge higher interest rates to those borrowers with more risky profiles; but one could argue that this model actually causes that which it wishes to avoid: unpaid/uncollectible loans. Why? because the borrower ran out of cash before he was able to fix his situation either with more income or lower expenses. Had he a lower rate, he might have been able to make a couple more monthly payments; and these two months might have given him the time he needed to make adjustments to his life and expenses.

I worked in the high-yield lending business for 3.5 years, and I saw predatory lending at it’s worse, so I know that more often than not, the reason lenders charge higher interest and fees to certain borrowers is because they can; not because it is neccessarilly right. For example, I have seen lenders create a lending product that frequently took advantage of borrowers ignorance and literally was lending the borrowers money back to the borrower.

A bank needs to create a credit product that gives it the opportunity to refinance other credit card balances while keeping the risk profile of the borrower in check by requiring the borrower close the card account from which the balance was transferred, and maybe even prohibit that the borrower not open any new lines of credit until the borrowers financial situation markedly improves. I think this could be a win-win opportunity for both th lender, borrower, and society.

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