I have never had a credit card and am being exogenously forced to learn about how the credit industry works. Do I have this right, where it is optimal for my credit score to have high credit velocity at some ideal debt proportion. AKA is the minmaxed credit score speedrun strategy to vibrate around like 30% of my credit limit by charging $1 back and forth at ~gigahertz frequencies
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@jonny Welcome to algo trading
The exact heuristics vary between credit rating agencies and change over time. They are trying to model what will happen if they lend you money. Their interfaces let banks specify the kind of thing that they’re thinking of offering you and they will give a couple of signals back (possibly only one) about your ability to cover the interest and repayments. There are basically two kinds of person that their customers are interested in:
The cash cows are the ones who are particularly lucrative long term for predatory lenders. They can afford the interest but not the capital. You lend them money at some interest rate above inflation and you have a revenue stream that lasts until the person dies (or does some debt restructuring and becomes someone else’s revenue stream).
The safe bets are people who can afford both the interest and repayments.
All of these are probabilistic. Your ability to repay depends on your job, for example. If you lose your job, how easy does their model predict it will be for you to get another that pays enough?
They typically want you to have some debt (even credit cards) so that they have data points to feed into their model about how debt affects your behaviour. If you have a line of credit, do you immediately go on a spending spree
They will report a number to you, but that’s really just one output from their models on a fixed (but unspecified) query. The real question that they’re trying to answer is ‘do your borrowing and spending patterns, along with other data shared by banks and other institutions, reflect someone who can be trusted to pay back money?’.
@jonny well I learned a new word tonight.
@jonny it's not really that complicated, just use it like a debit card. score goes up when things are paid off on time, anyone claiming there's more to it than that is misled or trying to sell you something
@jonny If you make a $1 payment with a credit card, merchants pay around $.33 of that in fees, so yeah, the rest of the credit card industry would love for you to be making many $1 payments
@clarfonthey @jonny it's possible for a merchant to negotiate different rates that work better for micro-transactions but it's not the default and it's not easy to access, last I checked
"Look, if we told you how it worked you wouldn't use it."
And they wonder why people made Saint Luigi votive candles _over fucking night_.
<3
@jonny is this america we're talking about?
@jonny okay, here's a super light watered down version:
- they want to see you 'using your credit'
- dont max out the card, thats bad
- if you use more than 50% of it at once, pay it off quickly
- debt to income ratio is a thing
- the advice of 'just use it for groceries and fuel or whatever and pay it off at the end of each month' is some of the best advice you'll get
banks are weird, non neutonian fluid assholes. they have bizarre aribtrary boundaries like this
