Credit card policies for allocating payments
its impact on risk-based pricing and comprehension by consumers
DOI:
https://doi.org/10.61190/fsr.v18i3.4950Keywords:
Credit cards, Payment, Allocation, PricingAbstract
Credit card borrowers can have balances on the same card at several different rates at once. By choosing a favorable method of allocating payments to balances, issues can substantially raise the interest rates paid by borrowers. The impact of this policy on risk-based pricing is examined using computer-simulated accounts. It is found that the prevailing policy used by issues causes inverse risk-based pricing. In addition, a survey shows that few credit acrd users understand the impact of payment allocation. The impact of recent legislation on payment allocation policy is also examined.
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