2007-12-22, Secret History of the Credit Card (3)

According to McKinley, the key to understanding how credit cards are marketed lies in the great digital revolution, the amassing 1 of data on American consumers.

Well, there is a gold mine of information residing out there in these databases by the consumer reporting agencies, the credit bureaus. They are collecting information about what kind of accounts you have opened, the balances, whether or not you make those payments on time. And that is a huge reservoir of information there that they can tap into and be able to get a sense as to whether or not a consumer is a revolver, someone who doesn't pay the balance off in full each month, so they can kind of sift 2 those out and / today it's really become almost surgical 3.

The ability to surgically 4 target consumers and track their financial behavior has become a booming business dominated by three credit-reporting agencies which gather information. All that data is then crunched 5 by a little known company called FairIsaac, which calculates a number called a FICO score for almost every American with a credit history.

We are not a credit reporting agency like an Equifax, TransUnion or Experian that's gathering 6 information daily on consumers and building up consumer records.

Tom Quinn is a spokesman for FairIssac.

We simply work with the credit reporting agencies and they deploy 7 their data onto our mathematical formula to create that score.

The median FICO score is 720 out of a possible 850. The riskiest 8 customers have scores below 600. The scores is an indication of how likely you are to pay your bills.

Lenders use that score almost like a thermometer to determine if they are going to grant credit or not, so the Algorithm is an indication of that consumer's future risk in terms of credit behavior.

Algorithm meaning a mathematical formula.
Mathema…, yes, mathematical formula.
And how many people have this number.

We estimate that approximately 75% of the US population that is eligible 9 for credit, i.e., those who are eighteen years or older have a FICO score at any given time.

You know your credit score?
You are not aware that you have a credit score?
I'm aware that I have one, / I don't know what it is.
Right, I don't know what it is.
I don't know what it is either.

So if I said to you the words, FICO score, do you know what a FICO score is?
I know the terms. I'm not clear on what they are. I've never got my credit score.

An individual's FICO score often determines how much interest he will pay on a credit card. The terms and conditions of the card are laid out in the fine print of this contract.

When I get a credit card, there is a contract that goes along with it. What kind of contract is this, coz I never read it, have you ever read it when it came to you?

Er, I'd have to admit, in most cases I may have just glanced at it. You know, it's filled with so many legal terms and so many pages in such / small print that it can be intimidating 10, I think.

It says that I'm guaranteed the terms of a loan for as long as I have the card.

Yeah, well, the / things, / the one unique thing about the credit card business is that the issuer can change the terms and conditions at will.

Without asking my permission?

Absolutely, they can change it all. It only takes 15 days' notice to make those changes. I mean, you could be offered a five or six percent interest rate today, and perhaps get it. Two month later, that could be 30 percent. There is nothing to prevent the issuer from changing those conditions.

Even professor Elizabeth Warren, an expert on contract law says she has a hard time deciphering her contract.

I've read my credit card agreement and I can't figure out the terms. I teach contract law, and the underlying 11 premise 12 of the contract law is that the two parties of the contract understand what the terms are.