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.