>Another big misconception about credit scores is that a "perfect" score is best. A credit score isn't how likely you are to pay back a debt,
A credit score, like the FICO, is literally the inverse band-percentage of the chances you will default on a debt. That's it's entire point.
There is huge incentive in the financial industry to get away from FICO and the CRA's stranglehold on consumer data, but the problem is, they have an accurate model that predicts reliably consumer behavior. The FICO bands do a very good job of predicting the default rates for various consumer debts. If there was something better it would be immediately invested in and would crowd out FICO in a matter of days. Lenders *hate* having to rely on multiple third-parties to rate risk, but thats where they are and they have no alternative.
There are very few, if any, lenders who actively want clients with a lower credit score. There are a few subprime credit card lenders, but for the most part, everyone using traditional credit reports wants prime customers. The risk difference between a person with a ~500 FICO and a ~800 FICO is the difference between making hand over fist money versus scraping by.
You are deeply wrong about interest. Interest charges for credit card companies is not where the money is. The money is actually in two things: 1) consumer fees, i.e. late fees and 2) processing fees from merchants.
The highest and most profitable credit cards to run in the industry have a low or no annual fee, lowish interest rates (in the 10% range), and high-credit limits. These are for high-income people who put large volume through the cards and pay them off monthly.
Consider a person who puts $2k a week through a credit card, and pays the balance monthly:
Net Spend: $8,000
Interchange Fees Paid by Merchants: $200 (at 2.5%, which is probably lower than what is average).
Balance at end of period: $0.00
This means the credit card company made in the ballpark of $200 for lending me $8000 for a period averaging about 30 days.
Imagine a person with a low-credit score carrying a balance of $1000 on a high-interest card:
Interest (monthly) at 24%: $20/month
Minimum Payment at 4% balance, plus interest: $60
Balance at end of period: $960
So for this person making payments of $60/month roughly, the credit card company is making $20/month, plus the original interchange on $1000, which is $25.
Now, given all that, consider this: a person with a Sub-600 FICO score will have a 25% chance of defaulting on an obligation. After default, recovery rates range greatly, but typically are in the 20-30% range. A person with a >750 FICO score will have a 0.4% chance of defaulting on an obligation.
All of this is to say: you are wrong about credit scores and what are perfect. FICO accurately measures the default risk, and banks use credit scores to accurately price risk. The default risk of low-score consumers is so high that companies that target low-score individuals rarely are financially viable, even with high-fees and very low credit limits. Meanwhile, financial products tailored to high-score individuals reliably produce good financial results.