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Credit Reporting Agencies Take A Fresh Look At How You Pay Your Bills

Nov. 12, 2013
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Credit cards can be a tricky financial tool. While they’re essentials for building a solid credit history, they also can be a gateway to overspending and debts we can’t repay. After all, credit card users fall into two categories: those who pay their balances in full every month and those who don’t.

It looks like credit reporting agencies have taken notice of these two camps; in fact, Equifax, Experian and Transunion are starting to restructure our credit histories to show the differences between these two types of credit card customers. That’s right: Credit bureaus are looking at financial habits that go beyond whether we pay our bills. Now they’re focusing on how we pay them, too.

What this means for you and your credit:

Revolvers vs. Transactors: Which Type Of Credit Card User Are You?

If you’ve been using a credit card for awhile, you’ve typically developed a pattern: Either you pay off your charges in full every month, or you run up your card and gradually pay it down, while floating a balance from month to month.

If you’re not paying off your plastic every month, it might be time to start doing that, because the major credit reporting agencies are keeping track. Those who regularly pay off their balances will now be branded as ‘transactors,’ while those who let their charges roll over from month to month will be known as ‘revolvers.’

While this difference might seem trivial, it sends important signals to potential lenders. Early data show that revolvers tend to pose a higher risk when it comes to repaying debt, which means that being labeled as one could soon lead to less favorable terms on loans.

How Is This Different From How Your Money Habits Are Reported Now?

This shift is a big change in how credit reporting agencies look at our financial histories. Until now, lenders have looked mostly at our total level of debt and our history with paying bills on time. That means that people who kept their overall debt levels low and paid their bills by the due dates were likely to have high credit scores, whether or not they carried a credit card balance from month to month. In fact, you couldn’t tell from a credit report whether someone was floating a credit card balance.

This new style of reporting probably will make creditors wary of customers who carry balances from month to month, and maybe penalize them with higher interest rates or stingier repayment terms.

Will These Changes Affect My Credit Score?

Our transactor or revolver status will show on our credit report, but it won’t be factored into our credit scores – yet. The major credit reporting agencies need to do more studies to see whether revolvers actually pose a greater risk before they decide whether to act. But the difference probably will show up in our credit scores in the near future, so if you’re not a transactor, you should consider becoming one.

The bottom line: How you pay your credit card bills has become an important footnote in our credit histories, so if you’re not paying off your balance every month, it’s time to make doing so a priority. You don’t want a ‘revolver’ status coming between you and your next loan!