this post was submitted on 15 Feb 2024
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ITT I’m seeing a few common misconceptions repeated by many otherwise correct and knowledgeable commenters without remediation. I’m addressing them here, because understanding financial systems empowers everyone, whether they wish to use them, change them, or burn them to the ground.
The volatility of scoring is the most important takeaway, I think. The temporary nature of scores can be exploited pretty easily. If you understand how they work, you can often get the score you need at a particular time with a bit of planning. And the rest of the time, when you aren’t using your scores for anything, they’re vanity numbers at best.
Anyway, if I missed something or am wrong, please point it out.
I was under the impression that many hard inquiries in a small time frame was ignored because it means you're shopping for a loan.
Having a single hard enquiry every so often would mean you're needing to keep borrowing money for some reason.
True. This inquiry collapsing behavior is a feature of recent iterations of two popular models: FICO (8,9,10) and VantageScore (2.0,3.0).
Note however that:
Bonus hack: Certain banks also routinely collapse/reuse inquiries for same-day applications, permitting additional applications “for free,” which can be useful if you are denied your first choice and have a fallback in mind or if you are instantly approved for one product and want to try for another.
https://www.fool.com/the-ascent/research/credit-card-company-earnings/
This source suggests interest, fees and charges account for well over 50% of income
True! Fed data corroborates this, and it appears the gap has only widened since.
(Image from 2022 CC profitability report)
So I was wrong. Thank you for the heads up. I’ll correct it shortly.
Interesting to see that this has only changed, fairly (last 3 - 6 years), recently and the profit from merchant vs interest fees has pretty much flipped!
I didn't know about the Fed data, so that to me feels like a good solid source as well.