Destroy a Credit Score, Reap the Profits

The headlines are full of stories about how banks, mortgage lenders, and businesses have tightened their so-called ‘lending standards’.  Did your bank just lower your credit limit without explanation?  Did American Express offer to buy you out if you’d just give up your card?

Though the media will tell you that these tactics serve to isolate financial institutions from risk—banks themselves may have the chutzpah to tell you that they’re really protecting you from overextension—this is all a LOAD OF BULLSHIT!

What happens when Wells Fargo terminates a credit-card that you’ve carried for years or when CitiBank cuts your credit-limit in half despite your spotless payment record? Well…your ‘debt to credit’ ration goes up and with it…YOUR CREDIT SCORE GOES DOWN! And therein is the key: America’s financial institutions are engaging in a concerted effort to lower the overall credit scores for millions of otherwise credit-worthy Americans. And why? To reap more profits in the form of higher interest rates. Consider: If your mortgage lender can just figure out a way to lower your credit score form the low 700’s to the high 600’s you’ll be forced to pay 10’s, maybe 100’s of thousands of extra dollars on a higher interest rate refinance.

In short, credit score destruction is bad for Americans but great for the financial institutions that, with the federal government’s help, have been f*cking us for the last 18 months.

6 thoughts on “Destroy a Credit Score, Reap the Profits”

  1. But wait!! Wasn’t the bailout of the big banks supposed to free up credit? Instead all it has done is reward the perpetrators of the fiasco.

    I’m still waiting for the ‘heckuva job, Hank’ for ex-SecTreasury Henry Paulson. Not that Geithner has done a damn thing to make things any better.

    “A government that robs Peter to pay Paul can always depend on the support of Paul.”
    — George Bernard Shaw

  2. I don’t think you guys grasp the full extent of this act of terrorism .

    By cutting everyone with high credit limits to 1/3 rd their original amount of credit.. everyone in America will now owe 3 or 4 times more than their original credit limits and loose all their credit.

    EXAMPLE:
    Someone with 9,000 in credit in one card, who lets say had 5,000 in debt. Their credit limit now drooped to $1500 without justification, they will now owe $3500 more than their new lower credit limit! This means that the card account will immediately be closed , the card revoked and the interest rate may be up to 25% more than before.

    But it gets worse, the huge overdrawn fee! . These penalty fees can be up to $300 or more a month as long as the account is overdrawn.

    For many many people this means that now
    they will ONLY be able to afford to pay the huge interest and penalty fees for their credit card accounts.

    In the past this was the trap that fiscally irresponsible people would fall into, they fell so much into debt that they could only afford to pay the interest and penalty fees, so the actual money they owed NEVER got payed off.

    By forceing as many people as possible into this situation banks are now making huge short term profits and making sure that when the government forces them to offer credit to people again, that only the wealthy will qualify for credit. Since everyone else will now have a low credit score, and no longer qualify for credit.

  3. I don’t think you guys grasp the full extent of this act of terrorism…

    DB… Welcome to Ragebot, but come on… “don’t grasp full extent…”?

    Dropping credit limits under the current balances of debt carrying customers, while entirely scummy, has been discussed in the press ad nauseum. I don’t think there is any way I or my readers could miss that, and I don’t need to repeat the one effect that has been discussed in the press. We’re all well aware of how these tactics can trap someone in a debt spiral. That wasn’t the point of this post.

    No… I was trying to point out how raising the debt to credit ratio of people who don’t normally carry balances—essentially destroying their sterling credit—benefits the industry by allowing them to lock in long-term gains realized from interest rates that the industry would not otherwise be able to charge.

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