Ok, I have been thinking (and that can be scary). The economy needs a boost, right? The rebate idea was good, but wasn't really a lot. And, what did it cost the government, several BILLION dollars? Don't get me wrong, I am not knocking GW, I think he is doing an AWESOME job. We just need more. Ok, so the idea. Get this. A Credit 'Amnesty' program. A program to look at he past two (arbitrary number for now) years of ones credit and see what they have done. If we have been responsible, ERASE the OLD negatives that are plaguing us, keeping us down. Face it. Many of us made mistakes. For some of us, it really wasn't entirely our fault. Medical, car wrecks, job losses....good people got hurt. But should we really pay forever? Did we not learn from those mistakes? Geez, even drug dealers get probation!?!?! This would cost the government very little. Of course there would be a R&D cost, but that would be all. Let us get the credit, let us spend, boost the economy- retail, banks, everyone would benefit. It could be a 'probation' type of deal. If we realy mess up again, then we lose and go back to where we were. Think about it, the new car sales, the home sales, it would really get the economy going strong. Of course there has to be limits, I'm not saying get us into a great debt. We have learned from our mistakes, they can educate us more if they want (maybe a mandatory finance class to qualify). What are they gaining by denying us credit? Making us drive the same crappy car for years, making us rent? No jobs are being created this way- Jobs are being lost. I think this would be a GREAT idea, it could fix a lot. Now, I know it is a stretch...almost like the reverse-engineer the Fico idea, but I had to get it out. What do you think? Shawn
I agree. Where do we start writing our Congressmen to get the ball rolling! LOL I did hear something about more tax cuts being tossed around to also help stimulate the economy. I just hope we don't get put back into a deficit. Your idea would definitely help the economy. I do agree about the limits. Maybe do the ratios for credit limits based on income? Make it easier to purchase a home with damaged credit, but keep the debt to income ratios in check. Yes, overlook bad credit based on rebuilding, but not overkill to allow some to get back into the same situation that got them in trouble to begin with. Sign me up!
Hi, Shawn, here's a few opposing thoughts for the sake of playing devil's advocate: 1) You mentioned that a "credit amnesty" program would erase old negatives across the board for all Americans who qualify. Shouldn't banks at least try to avoid making loans to people who are statistically more likely to default? Since banks are private entities, rather than public utilities, they are free to try to make predictions like that. Similarly, if you have two friends who both need loans, one being super responsible all his life and the other being a proven deadbeat at some point in the past, you're also free to decide as well. 2) You mentioned that many of us made mistakes which weren't entirely our fault -- medical problems, car wrecks, etc. My question is -- isn't that what saving money is about? Have many of us completely forgotten why it's important to have an emergency fund and adquate health and automobile insurance? If someone is one or two emergencies away from going into debt, then perhaps they really need to rethink what credit is really about. 3) You said, "Let us get the credit, let us spend..." Well, a credit card with a $5,000 line of credit doesn't mean that, whoopee, you've got $5,000 now that you should run out and spend. Credit is only an opportunity to go into debt. It's an opportunity to spend somebody else's money rather than money you've earned yourself. 4) You asked, "What are they gaining by denying us credit?" How about the opportunity to maximize profits for the owners and shareholders of the financial institution? 5) You suggested that denying you credit is "making us drive the same crappy car for years"... Well, in that situation, why even think about trying to finance a brand new car which will depreciate significantly the moment you drive it off the lot? Not everybody should buy a new car. Instead, why not save your money and buy a two-year-old used car? Ok, I'm just throwing these ideas out to spur a bit of debate. Thoughts? Doc
Well, to be honest, it was just an idea. I don't feel strongly enough about it to debate it, but I will copmment on some of your points. It's just an idea. The economy is going to need some help- things are not looking good. There are a lot of people (good people), and this board is evidence, that are having problems getting credit. This just seems like a good way to get things going. Shawn
The idea sounds good. We will go into a deficit, we will go into the SS funds, it is needed. We are living in different times, it is after 9/11/01, never forget, never surrender. www.creditsense.com
It's one thing to refuse to do business with a deadbeat but quite another to use a rip-off fico in order to rob him by overcharging for products or services ! ! !
NEW LAW...anybody with PERFECT PAYMENT HISTORY since 1978 and household income of $100,000+ SHALL NOT BE DENIED any credit for any reason, and NO credit report shall be pulled!!!
Doc, I noticed your phrase "statistically more likely to default." Now, it seems likely that those with any derogatory items on their credit reports are more likely to default than those with no derogatory items. Patterns of spending, inability to earn income, and even health problems may recur in predictable ways. But that's an empirical question. It is not at all self-evident. If nothing else, we could note that in order to default, one must first incur debts. If credit is hard to obtain because one has previously defaulted, then those with recent credit problems may have an extremely low risk of default. What can they default on, their $200 Capital One Visas? It could also be that many people learn from credit problems, and are therefore less likely to default in the future. As far as I know, FICO and other formula peddlers haven't made any effort to identify these people, who would constitute a lower-risk group among the population with previous delinquencies. Finally, let me note that there is a certain crudeness about the way most credit formulas treat delinquencies. If one simply divides credit applicants into two groups, those with some delinquencies and those with none, then it seems likely that the first group is more likely to default. But if we examined subgroups like those who had delinquencies 4 or 5 years ago, we could find that their risk of default is nearly identical with those who have never defaulted. It's an empirical question, one in which many creditors (such as Amex) have no interest. Even though, and this should interest you, settling that empirical question could help banks to maximize returns to their shareholders. Banks lose money not only from bad loans, but from loans that are never made due to excessive caution.
The intent of fico is not to identify risk.Its' purpose is to unjustifiably over charge as many folks as possible! ================================= No pain no gain:
I have to disagree. This type of liberal program would be very discriminatory -- only certain people would get relief. What about those who were in your exact situation 3, 5, 10, 20 years ago? They received no 'amnesty'. How about those who have paid their bills on time, day in and day out, have zero negative information and owe nobody nothing? Why should some get relief why others get squat ?? Most importantly, who gets to be the judge and who gets to set the rules as to where the cut-off point is between a 'deadbeat' and a 'mistake' ?? Somewhere, someone would get screwed because they were deemed as being just over the line that separates a deadbeat from a mistake maker, which is no different than a 639 FICO getting denied and a 640 getting approved. There is a purpose for the system. Do the crime, do the time. Don't pay your bills -- suffer. I suffered for years and years, just like millions of others. Was I a deadbeat or had I just 'made a mistake'? I had full intentions of paying my bills off. But I never knew I'd get divorced or pay 60% of my income in child support. Does that make it a mistake? WooHoo, I get FREE amnesty. Then again, why was I such an idiot to get $30K in debt, while happily married, not worrying about the future? Does that make me a deadbeat? Damn, now I'm not eligible for the amnesty. Wish I could agree with you, but I can't.
Great points, RichGuy! I worked for several years in a behavioral lab in a university psychology department. Unlike you, quite a few of the master's level people working on their Ph.D.s had trouble grasping some of the many issues and confounding variables that can impact any statistical examination of human behavior (which is far more difficult to codify than, say, the building blocks of physical science). Anyway, you bring up some important issues. I share your doubts regarding FICO scoring. On the other hand, I well understand the need for banks to not pass out their money to anybody who happens to knock on their doors. Although past performance isn't necessarily predictive (I'm beginning to sound like Merrill Lynch, lol), I'd bet my left butt cheek that there's a highly significant correlation lurking in there somewhere. Doc
My thought is a bit different. I believe subprime credit is about to be nearly impossible to obtain. Citi and Wells Fargo saw the writting on the wall this spring as they exited the subprime arena. As the recession deepens and accelarates due to the attack on the WTC, companies like Provenian, American Century, Metris, and Captol One find there business models in ashes. The problem is not just the alligator nipping at them{chargeoffs and defaults} but, the volume of credit card transactions is dropping. New debt not being generated fast enough to replace old bad debt. Some of these companies won't make it. Also, many smaller players {small regional bank holding companies} will sell their cc portfoilios to the Citi's and MBNA's of the world. The big ones get bigger. You'll have the really big players fighting to attract prime customers and subprime will have very few if any choices. This is a dangerous time to have blemishes on your credit.
They may just change their approach to it. Subprime is still big business. So they just charge higher fees, rates, etc. When insurance companies want money they lower their underwriting standards, and raise their rates. Why shouldn't credit issuers do the same? Just a thought, I have no idea what they'll do. PVN is tightening up, Metris is dispensing bigger LOC's - although I wouldn't call my DMB (Metris) account subprime. Citi is taking almost all applicants. Cap One is actually on sound financial footing according to most analysts - for the very reasons we don't like them, LOL, they're stingy. However, I don't think the government will ever make a private business do something like has been suggested in this thread. It's wishful thinking, IMO. I do think that New York has the right idea - five years instead of seven, but otherwise I guess I'm one of the fuddy-duddy's. Regardless of the reason, I was a bad credit risk for a while - not a bad person. Creditors have a right to know this, IMO. <climbing down off soapbox>
Well, the 'two' years would be an arbitrary number. I am not trying to ignore people who had incidents before then. While the 'statstics' may show that lower FICO scores mean lower chances of re-payment, I think many of us here would totally disagree. I know, almost purely from my personal experience, that I will NEVER pay a bill late again. I know I will NEVER let my balances get out of control, and I know I will ALWAYS invest in myself (savings, etc) before making unnecessary purchases. Oh, and I have a 'low' Fico. There's a lot of things 'statistics' will show that I am sure we all would disagree with. Again, it is just an idea. I think it would really get all aspects of the econmy going, create/keep jobs, and really help morale. I have another idea, too.....but I am sure this one would be less popular. I think ALL people should have to do 1-2 years of military training after HS. A lot of countries do this. I think it would do a lot for character, morale, responsibility, etc. For the record, I have NEVER done any military time myself- although I really wish I had of at one point. Shawn
I have to chime in on three of PsychDoc's points. Credit Amnesty is a good idea in theory, but the downside is too big: 1) You mentioned that a "credit amnesty" program would erase old negatives across the board for all Americans who qualify. Shouldn't banks at least try to avoid making loans to people who are statistically more likely to default? Since banks are private entities, rather than public utilities, they are free to try to make predictions like that. Similarly, if you have two friends who both need loans, one being super responsible all his life and the other being a proven deadbeat at some point in the past, you're also free to decide as well. I agree that an amnesty would put lending institutions on a slippery slope to ruin, because they woiuld lose a big chunk of their statistical decision-making process. It is easy to find fault in it, but no one has yet come up with a better system. Even the outrageous fees & interest would not be likely to catch up to the default amount of extended credit... 3) You said, "Let us get the credit, let us spend..." Well, a credit card with a $5,000 line of credit doesn't mean that, whoopee, you've got $5,000 now that you should run out and spend. Credit is only an opportunity to go into debt. It's an opportunity to spend somebody else's money rather than money you've earned yourself. Too true, take the examples that are always discussed of college kids who get these cards and go nuts, then go deeeeeep into debt or BK. We all know as adults it can happen for a variety of reasons as well, whether the circumstance are of our own doing or not. 4) You asked, "What are they gaining by denying us credit?" How about the opportunity to maximize profits for the owners and shareholders of the financial institution? Yup, they are businesses after all, as opposed to immigration and tax amnesties, which are based on government programs. Good thread!
