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Another reason not to carry credit card balances

Credit bureaus are now factoring in how much you pay.

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Credit bureaus are now factoring in how much you pay.

As if you really need it, here's another reason not to carry a balance on your credit card. Credit bureaus have started using "time series payment data" — basically a record of your payments in the past several years — that potentially could raise a red flag with lenders.

"Traditionally, credit card accounts on credit reports have contained balance information only as recent as your prior month's statement," said John Ulzheimer, a credit expert. "The addition of time series payment data to credit reports now allows for the reporting of your balances, the amount due on your credit card accounts and, most important, the amount you actually paid."

That means that if you can't pay your full monthly balance, you should pay as much over the minimum payment as you can. Paying just the minimum makes you look riskier from a lender's perspective.

"Even when you control for credit score, if you're paying just the minimum amount on your credit cards and I'm paying multiple times that, I would be far less risky going forward," said Ezra Becker, vice president of research and consulting for TransUnion's Financial Services Business Unit.

A study last year by TransUnion, one of the three major credit bureaus, found that consumers who carry a balance on new bank credit cards are more than three times riskier than those who pay the balance in full every month.

What's more, "revolvers" (those who carry a balance) are five times riskier on existing bank credit cards than "transactors" (those who pay the full monthly balance), TransUnion said. So how much over the minimum payment should you pay?

"There's no tipping point," Becker said. "For every multiple you pay over the minimum due, the less risky you are, up to the point where you are the least risky and you're paying in full every month."

Expect time series payment data to be increasingly influential.

"This information is so relatively new that credit scores have not yet been built to incorporate that information," Becker said. "We are now just coming out with credit scores that do incorporate the information, and we find that they have massive predictive power improvements over traditional credit scores."

Bottom line for consumers?

The assumption that "as long as I make my payments on time, I have good credit" is no longer accurate, Ulzheimer said.

Another reason not to carry credit card balances 05/18/14 [Last modified: Sunday, May 18, 2014 5:48pm]
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