Credit card use most important factor in credit reports

credit cards

Credit card debt can get out of hand fast. Managing it is the best thing you can do to improve your credit score. Image: Tax Credits/Flickr/CC BY

The Consumer Financial Protection Bureau has released a new study about credit reports. It found, among other things, that credit card activity is the single most important factor examined by credit reporting agencies when determining credit worthiness.

Responsible credit card use highlighted

That probably isn’t surprising to most people. However, it does spotlight where consumers should concentrate their efforts in order to keep credit scores high for the next time they need to buy a car or want to take out a mortgage.

Richard Cordray, director of the CFPB, said: “Credit cards are given great weight in credit profiles — a lesson that consumers could end up learning the hard way.”

According to the CFPB report, more than half of the data on the typical credit rating report comes from credit card companies.

Cordray said that during the holiday season some consumers may be tempted to fill out a new retailer credit card application in order to receive a discount on gift purchases. However, if they do not use that card in a responsible way, such as paying off all charges each month, they could find themselves easily falling into a debt spiral. He said, “it could end up costing them a lot more down the line when they go take out a mortgage and that credit card is a black mark on their credit report.”

Recession and credit card use

However, reigning in credit card use has proven not the easiest of tasks for many American consumers during the economic downturn. Stagnant wages, high unemployment and rising prices have conspired to force more and more Americans into using their credit cards for daily expenses, and not just for emergencies or occasional splurges.

The Center for Responsible Lending said Wednesday that around 40 percent of low- and middle-income families routinely use plastic to meet daily needs, such as food, rent and clothing. So apparently the teaching point from the CPFB report is one that Americans would do well to take to heart.

Credit CARD Act

One the other hand, many Americans have managed to reduce high credit card balances in the recession’s aftermath. Much of that, however, can be attributed to credit card reforms, say some analysts. The Credit Card Accountability Responsibility and Disclosure Act of 2009 eliminated or restricted many predatory lending practices, such as high penalties and fuzzy fee structures.

Stay informed

Americans also fall down when it comes to staying informed of their credit standing. According to the CFPB, less than 20 percent of consumers bother to obtain copies of their credit report. Frequent monitoring of credit reports allows consumers to identify any reporting errors or incidents of fraud before being blindsided with the news when they go to take out a sizable loan.


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