The Spark

“The emancipation of the working class will only be achieved by the working class itself.” — Karl Marx

Credit Score Rip-Off

Aug 20, 2012

Banks use credit scores to rip off poor people and workers. And now, they’re doing it even more: They’re building a new bubble of “sub-prime” auto loans on the backs of people who can’t repay them.

A new study by Experian Automotive shows that banks have loosened the requirements for auto loans. The average credit scores of people issued auto loans have dropped to pre-recession levels. And loans to car buyers with “nonprime” to “deep subprime” credit scores have increased by 11.4%.

So, people with lower incomes can get auto loans – but at much higher interest rates than people with higher incomes and higher credit scores. The banks charge people with “bad” credit scores much more in interest than they charge people with “good” credit scores. For instance, someone with a “bad” credit score of 520 would have to pay about $110,000 in extra interest for a 30-year, $100,000 house mortgage, or an extra $300 a month, compared to someone with a “good” credit score of 720. The same holds true for a car loan or for purchases with a credit card.

So, just like with the real estate bubble before 2008, banks are pushing sales up – by pushing high-interest loans onto people least able to repay them. Which means more people will default, which means their credit score will get worse, which means they’ll have to pay still more interest.

And the banks make out like the bandits they are!