Credit expert warns Trump’s credit card rate cap will create bigger problems
Ari Page, founder of Fund&Grow, explains how credit card companies set interest rates based on borrower risk profiles like payment history, income, and debt levels. He warns that a proposed 10% rate cap could backfire, pushing lenders to deny credit entirely to higher-risk borrowers rather than offering pricier options.
Originally Written by: Melissa Vera
Credit card debt has become a growing problem for many Americans. Prices are still high, interest rates remain painful, and more families are relying on credit cards just to cover everyday costs. That’s why a proposal to cap credit card interest rates at 10% has gained so much attention lately.
How lenders decide interest rates
According to Page, who runs the business credit consulting firm, Fund&Grow, credit card companies don’t just assign rates randomly or purely on market rates. Instead, they study a borrower’s risk profile carefully before approving credit and setting interest rates.
He explained that banks often review factors such as payment history, income, and amount of outstanding debt” before making lending decisions.
People with stronger credit scores usually receive lower rates because data shows they’re more likely to repay what they borrow. Borrowers with weaker scores are considered riskier, based on data, so lenders charge more to offset the possibility of losses.
As Page explained, “your credit score is a proxy for risk to the lender.”
That system, he argues, is what allows lenders to continue offering credit to a wide range of borrowers instead of limiting loans only to people with near-perfect credit.
If lenders lose the ability to price loans based on risk, Page believes many companies will simply stop approving higher-risk borrowers altogether.
See Original Article: Credit expert warns Trump’s credit card rate cap will create bigger problems
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