This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

New role for credit card payments in credit scores

Up until now, it's not been hard for those with credit cards to understand how to avoid their plastic having a negative effect on their credit scores. All they had to remember was:

  1. Make every payment (at least the minimum due) every month on time.
  2. Keep balances below 30 percent of the cards' credit limits. The lower that percentage the better, but the difference 10 and 20 percent make to your score compared with 30 percent is minimal.
  3. Apply for new credit cards only when you need them. Having lots of recently opened accounts of any sort may be harmful.

Observe those three rules, and you'd have every reason to expect your cards to help rather than hinder your achievement of a good or great credit score.

Credit cards and scores: New factor

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.

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, 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 percent of lending decisions in this country.

If FICO and others in the credit-reference industry do in future begin to differentiate between transactors and revolvers, it could see the latter's scores being downgraded even if they always make minimum or higher credit card payments on time every month. And that could see a significant change in how people view their plastic.

Credit card companies likely want status quo

This could be bad news for credit card companies, because it could result in fewer revolvers. After all, would you use your credit cards to borrow if you knew that was likely to make your home, auto and other loans more expensive?

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.

Credit scores like ketchup and ice cream

People talk about "your credit score," but in fact pretty much everyone who has one has many. There may not be quite as many varieties of these as Heinz has, nor flavors as Baskin-Robbins, but it's perfectly normal for an individual to have a couple dozen.

1 of 2

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,959.44 +154.64 0.87%
S&P 500 2,078.54 +7.89 0.38%
NASDAQ 4,781.4240 +16.0440 0.34%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs