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U.S. Patent Mar. 27,2012 Sheet 2 0f5 US 8,145,549 B2
Super-Low The Bank One Magnesium Card gives you an unsurpassed Introductory savings opportunity with an introductory 0% fixed APR on all APR: 0.0%!!! purchases and balance transfers for up to six months. After the introductory period, you will continue to save with a fixed rate Q lgw as §.§% APR on purchases and balance transfers. And there is no annual fee.
The terms of your account, including the APRs, are subject to change in accordance with your Cardmember Agreement. 31
32 Thanks, The Bank One Team
Bank One Magnesium Card Credit Application
Fill out this application and return it to us:
Social Security Number:
Do you own a house? Circle one: (Yes, No)
Monthly Rental or Mortgage Payment:
Are you married? Circle one: (Yes, No)
if married, spouse's income:
If married, number of children:
1 2 3 4 5 6 7 100 pts Band (Band-7 means 701 to 800)
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11.9% (Higher Price): ideally, the point below champion price at which slope (elasticity) changes most drastically
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8.9% (Lower Price): ideally, the point above champion price at which slope (elasticity) changes most drastically
) Lower CP/Fico Score Higher CP/Fico Score (higher risk) (lower risk)
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1 SYSTEM AND METHOD FOR OFFERING RISK-BASED INTEREST RATES IN A CREDIT INSTUTMENT
This application is a Divisional of U.S. patent application Ser. No. 10/448,230, filed on May 30, 2003, entitled “System and Method for Offering Risk-Based Interest Rates in a Credit Instrument.” The disclosure of this priority application is hereby incorporated by reference in its entirety.
The present invention relates generally to the field of credit instruments. More specifically, it relates to a system and method for providing credit instruments by offering consumers a credit instrument with a plurality of potential interest rates corresponding to a plurality of consumer credit risk scores.
This application is related to subject matter in Ser. No. 10/284,394, filed Oct. 31, 2002, entitled “System And Method For Account Registration With User Selectable Terms”.
BACKGROUND OF THE INVENTION
Credit accounts are widely used throughout the world for non-cash payments for goods and services. Typically, the authorized user of an account is issued a card and account number that can be used to charge purchases to his account. The credit card issuer (e.g., a bank) pays the merchant, and the card holder then reimburses the issuer. The issuer’ s revenues are received by charging the merchant a fee for each transaction, and also by charging the cardholder periodic fees and interest on unpaid balances.
From the cardholder’s perspective, using credit cards is desirable for several reasons. It is often more convenient than paying with cash or checks. The customer receives an itemized record of payments every month from the issuer, thereby enabling consumers to better track expenses and plan budgets. Further, the consumer can use a credit card to borrow money when personal funds are low.
From the issuer’s perspective, issuing credit cards can be a very profitable business. A good customer can generate hundreds of dollars of revenue per year through merchant fees, cardholder fees, and cardholder interest payments. However, issuers can also incur substantial losses from customers who fail to pay cardholder fees, cardholder interest payments, and account balances. As a result, issuers want to acquire as many good (i.e., low risk) customers as possible while avoiding undesirable (i.e., high risk) customers. The primary factor used by issuers to determine whether an applicant is likely to be a good customer is a “credit risk score.”
Credit risk scores canbe any score that measures a person’ s credit risk and can be FICO scores or any other proprietary or non-proprietary credit risk score. Issuers such as Bank One typically calculate a credit risk score based on information submitted in an applicant’s credit card application in addition to a credit history report provided by a third party rating agency such as Equifax, Transunion, or Experion. Although third party rating agencies calculate and provide a score called a “credit rating” as part of the credit history report, such scores are typically not used by issuers except for purposes of denying applications of applicants with prohibitively low scores.
As a general rule, issuers consider applicants with a higher (better, more desirable) credit risk score to have a lower (worse) risk of defaulting on payments to the issuer. Similarly, issuers consider applicants with a lower credit rating to have a higher risk of default. Because issuers lose money when customers default, issuers seek applicants with the highest credit risk scores possible. As a result of these considerations, applicants with higher credit risk scores are considered more profitable and desirable to issuers. As with bank loans, customers with lower credit risk scores are ultimately charged higher interest rates to account for their higher risk, and customers with higher credit risk scores can be charged lower interest rates because of their diminished risk. Thus, consumers with good credit histories and resulting high credit risk scores are highly desired by issuers, and issuers must vigorously compete to attract and retain such customers. On the other hand, an issuer will often deny a credit card application of an applicant who has a credit risk score below a level that is acceptable to that issuer for a particular credit card product.
Issuers also want to attract new customers in the hopes of generating additional revenue. Issuers have traditionally tried to attract new customers by advertising in banks and places of business, and also by sending offers to potential customers by mail and other means. The terms (or parameters) of these offers vary. For example, many credit card solicitations offer different combinations of interest rates, credit limits, and annual fees. Many also offer the customer a low introductory interest rate. Others promise rewards for card usage such as rebates on products (e.g., GENERAL MOTORS), cash rebates (e.g., DISCOVER), or frequent flyer miles (e.g., AMERICAN AIRLINES/CITIBANK).
Credit cards often have a lower introductory interest rate to entice applicants. However, after a fixed period of time, such as six months, the interest rate of the card usually goes to a higher long-term rate. The long-term rate is called the “go-to rate” because it is the level the interest rate “goes to” after the introductory time period. Issuers also use the applicant’s credit risk score to determine adjustments in the customer’s long-term interest rate for the credit account. In this way, a particular cardholder’s go-to rate can more closely reflect the cardholder’s risk to the issuer.
Until now, issuers have typically relied on a relatively limited range of product differentiation (as discussed above) in combination with traditional advertising to distinguish their products from competitors’ offerings. The conventional credit product offer has been for a single product with a single set of term parameters, e.g., a VISA card at a 14% annual percentage rate (APR). Conventional credit product offers have not tried to attract new customers by offering a plurality of term parameters corresponding to a plurality of credit risk scores in the communication of the initial offer, thereby enticing individuals with high credit ratings to apply for a credit card, and thereby distinguishing their product from the competition.
In addition to the problems faced by the issuers, consumers (i.e., the cardholders) face a separate set of problems. Consumers with good credit histories often receive numerous offerings to sign up for new credit cards. While applicants are of course free to seek out an account with terms they desire, consumers are typically faced with advertised interest rates that apply to all applicants generally. Although it may be cost-justified for a card issuer to provide a credit instrument with a very low interest rate to consumers with excellent credit histories, the number and availability of such offers is somewhat diminished since each offered credit instrument provides a single interest rate applicable to all accepted appli