Monday, September 27, 2004

 

Why Not Let People Buy a Good Credit Score?

Those who use credit scores the most are usually in the business of loaning money. People who loan out money like to get it back with as little trouble as possible. The two biggest problems they fact are deadbeats who won't pay their bills and those who go for bankruptcy so they don't have to.

Now I oppose the 'bankruptcy reform' that Bush & many other Republicans advocate because I view it as an unjust windfall for the credit card industry. It is common sense that if you make riskier loans you will incur higher defaults. That comes with the game. I also view it as a violation of the implicit contract entered into by debtor and creditor. The creditor (credit card companies) made their loans knowing the debtor could declare bankruptcy.

However, why not form a coalition of creditors and credit ranking agencies and allow people to buy points on their credit reports? The way it could work is that people seeking to improve their credit could make payments to the credit agencies who would raise their scores. The funds raised would be placed into a fund and distributed to creditors who agreed to abide by the new system. The distribution could be weighted by losses experienced by creditors due to bankruptcy. In other words, if Fleet Bank suffered 50% of the credit card losses caused by bankruptcy and Chase Manhatten Bank 25% then Fleet would receive 50% of the payout and Chase only 25%.

The advantages I see:

  1. There would be less financial incentive for banks and financial firms to push for harsher bankruptcy laws.
  2. Credit card companies would have a mechanism to recover a portion of their losses thereby allowing savings to be passed onto those with good credit.
  3. Individuals seeking to improve their credit could do so provided they considered it worth the price. There might have to be some element of fraud protection here. Think a sliding scale where the cost of each point increases dramatically above a certain level.
  4. This would increase saving in the economy since old debts would be (partially) paid off by those seeking to be rewarded with a better credit score.

Comments:
Well this is all very good but do check out this list
 
Why is there nothing about monkeys on this blog?
 
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