Risk Based Pricing
Risk-based pricing is the practice many lenders
are using to allow people to qualify for credit
who previously wouldn’t have been able to
qualify. It is the method of charging different
people higher fees and interest based upon the
amount of risk. If you have great credit scores
then you can have credit for a lower rate, while
someone with poor credit would pay more.
This method has made it possible for many people
to get credit that would never have qualified
before. Although it makes it possible for more
people to get credit it raises the overall cost
of money to even the best credit risks.
If you were unable to get an instant approval
for a credit card. The lender will review your
entire credit history and make you an offer based
on risk-based pricing. Interest rate could vary
between 5% and 28%.
Recently, credit card issuers have used the same
procedure on current members. Since most credit
card issuers perform periodic credit reviews on
existing cardholders they may change a cardholders
rates based on changes in their credit score.
It’s a new way to increase your finance
charges so pay attention to your monthly statement.