topic Re: New Role for Credit Card Payments in Credit Scores in Credit in the News

New Role for Credit Card Payments in Credit Scores

hitch345 — Thu, 19 Jun 2014 21:07:42 GMT

http://www.foxbusiness.com/personal-finance/2014/06/17/new-role-for-credit-card-payments-in-credit-scores/?intcmp=obnetwork

Re: New Role for Credit Card Payments in Credit Scores

vanillabean — Fri, 20 Jun 2014 13:57:50 GMT

"The purpose of this is to differentiate between "transactors," who pay down their balances in full each month, and "revolvers," who routinely carry forward ("revolve") balances from one month to the next. The theory is that transactors are likely to be more creditworthy, and so deserving of higher scores"

I wonder what happens in the case of balance transfers, convenience checks and various promotional low interest cards and offers.

Re: New Role for Credit Card Payments in Credit Scores

TheConductor — Fri, 20 Jun 2014 16:32:25 GMT

Interesting, but as is typical, the headline tries to treat something that is a very early experimental testing of the waters and treat it as a solid conclusion.

The truth is in the article itself:

But now a new factor might soon affect your score, according to a recent report from The New York Times. It suggested that at least one of the Big Three credit bureaus was already using the amount by which you pay down your cards each month to help calculate your score. Other bureaus and scoring companies may well follow suit.

Translation: Only one of the big three bureaus is doing this.

The theory is that transactors are likely to be more creditworthy, and so deserving of higher scores, though a FICO spokesperson told the Times that it was still studying the data, and was yet to change its systems. FICO is the company whose credit-scoring technologies are used in over 90% of lending decisions in this country.

Translation: It affects some other score, not FICO, so who cares?

Even though Fox Business didn't bother to link the NY Times article that was their source, let's have a look, shall we?

TransUnion, however, does incorporate payment amount into some of its credit scoring products, like its CreditVision scores, which are used to evaluate risk for new accounts, said Charlie Wise, a vice president in TransUnion’s Innovative Solutions Group.

Oh, that score?

I'm going back to bed...wake me up when someone is using CreditVision to decide whether to give me a card, car loan, or mortgage.

Re: New Role for Credit Card Payments in Credit Scores

Roarmeister — Sat, 21 Jun 2014 02:55:49 GMT

"And the interest those who roll forward balances pay represents an important revenue stream for these purveyors of plastic. Indeed, within the card industry, transactors are known, unflattering, as "deadbeats," because those who never borrow generate little profit."

Oh goody, now those who are the most fiscally responsible and work within the rules are called "deadbeats".

Re: New Role for Credit Card Payments in Credit Scores

fused — Sun, 22 Jun 2014 02:56:26 GMT

@Roarmeister wrote:

Oh goody, now those who are the most fiscally responsible and work within the rules are called "deadbeats".

The CCC's and banks have been using that word for years. I remember countless discussions about it in the fora 6 or 7 years ago. Until recently, I was a deadbeat to the CCC's and banks. I still owe some money on a car note and one CC. Let them call me a deadbeat.

Re: New Role for Credit Card Payments in Credit Scores

Anonymous — Sun, 22 Jun 2014 13:46:19 GMT

Great info!

Re: New Role for Credit Card Payments in Credit Scores

vanillabean — Sun, 22 Jun 2014 16:24:10 GMT

@fused wrote:

I still owe some money on a car note and one CC. Let them call me a deadbeat.

I take it you are stretching your car loan to the extent possible? After then though, what do you expect?

Re: New Role for Credit Card Payments in Credit Scores

fused — Mon, 23 Jun 2014 02:34:25 GMT

@Anonymous-own-fico wrote:
@fused wrote:

I still owe some money on a car note and one CC. Let them call me a deadbeat.

I take it you are stretching your car loan to the extent possible? After then though, what do you expect?

I have a car lease that will end this October. My wife will take out the next car loan or lease. After the lease is closed and paid satisfactorily in October, it should report for up to 10 years. It will help with my credit history length, AAoA and credit mix. I know with the older FICO Scoring Models all accounts on one's reports count in AAoA, but if you only have one installment loan on your credit reports, you usually got a few more points for it being open rather than closed. Does the same hold true for the FICO 08 Model? Not sure when it comes to earning a few extra points for having an open installment TL versus a closed installment TL. With the FICO 08 Model, I feel like I'm starting all over again like I did with the older FICO Scoring Models more than seven years ago. Oh, well!

Re: New Role for Credit Card Payments in Credit Scores

fused — Mon, 23 Jun 2014 02:57:52 GMT

Credit deadbeats are cool!

Re: New Role for Credit Card Payments in Credit Scores

Roarmeister — Tue, 24 Jun 2014 00:23:09 GMT

@fused wrote:
Credit deadbeats are cool!

That they are.

Re: New Role for Credit Card Payments in Credit Scores

ways2go — Thu, 26 Jun 2014 14:37:04 GMT

what is interesting to me, if credit cards don't want you to carry balances, isn't that going to hurt their bottom line? They can't just live on transactions either. They earn quite a bit on interest as well. Why bother with a credit card, if you have to pay it off all at once. Why just not a debit with rewards then?

Re: New Role for Credit Card Payments in Credit Scores

TheConductor — Thu, 26 Jun 2014 15:50:26 GMT

The reality is that credit card companies don't want one specific behavior, be it carrying a balance or PIF every month.

For them, each credit card product is an investment portfolio, and that portfolio needs a healthy balance of risk and reward. They're threading the needle between safety and profits.

A healthy credit card will have a significant number of customers who PIF each month as well as a portion who carry balances and provide the majority of the profit., The so-called "deadbeats" are actually there to mitigate the risk introduced by the "transactors".

Credit card companies are constantly maintaining this balance to ensure that the risk and profitability of a given card is near their target for it. This is why, for example, you might see them offering deals on balance transfers when there are not enough "transactors" in the customer pool, or sending targeted offers to FICO high-performers with low utilization when they need more "deadbeats" to protect their investment.

Just like us, credit card companies have to diversify to make the most of their investment money.

Re: New Role for Credit Card Payments in Credit Scores

Themanwhocan — Sat, 28 Jun 2014 04:26:21 GMT

@Roarmeister wrote:
"And the interest those who roll forward balances pay represents an important revenue stream for these purveyors of plastic. Indeed, within the card industry, transactors are known, unflattering, as "deadbeats," because those who never borrow generate little profit."

Oh goody, now those who are the most fiscally responsible and work within the rules are called "deadbeats".

I prefer the term 'slacker'... deadbeat is so 19th century.

Re: New Role for Credit Card Payments in Credit Scores

MT936 — Sun, 13 Jul 2014 02:35:27 GMT

I like the idea, I always pay in full on time and I believe that people who do should be worthy of a higher credit score than those who carry balances but that Is just my opinion

Re: New Role for Credit Card Payments in Credit Scores

vanillabean — Sun, 13 Jul 2014 02:54:06 GMT

You can argue as well that reporting a balance is carrying a balance (from the statement date to the due date). People who pay down their balances within the billing cycle are indeed rewarded with higher scores, which of course has happened for some time.

Re: New Role for Credit Card Payments in Credit Scores

bdhu2001 — Sun, 20 Jul 2014 19:48:17 GMT

@Anonymous-own-fico wrote:
"The purpose of this is to differentiate between "transactors," who pay down their balances in full each month, and "revolvers," who routinely carry forward ("revolve") balances from one month to the next. The theory is that transactors are likely to be more creditworthy, and so deserving of higher scores"

I wonder what happens in the case of balance transfers, convenience checks and various promotional low interest cards and offers.

Since they already have enhanced scores for the various products, ie mortgage, bankcard, and auto, I think this is "much ado, about nothing." Credit card companies want a good mix of both, but they really want people who pay their bills. Also, they're aware that the transactors can be enticed to revolve or sometimes become revolvers for short periods of time.

I count myself as an average transactor, but I was a revolver to pay for my daughters wedding. In addition, I'm buying a new home and some of the repairs, on the new home, will be revolving. I'll try to keep the balance down, but my card has enticed me with 0% interest for 1 year so I won't have much angst over the amount that revolves.