The biggest phrase from the United States Revolutionary period, and an immortal declaration of society, is that “all men are created equal.” Well, the same is not true for your credit accounts! According to the Consumer Financial Protection Bureau’s new report, consumer obligations to credit-card companies actually carry more weight on credit reports than consumer debt like mortgages and student loans, even though the latter types of loans tend to cost more money and have longer payment terms. Being that all credit is not counted equally, it’s only further motivation to pay off credit cards and stick to a budget–especially around the holidays. Here is what Elizabeth Dwoskin of Business Week had to say regarding the CFPB’s report:
“Your obligations to credit-card companies carry more weight on your credit report than bigger debts, such as home and student loans.
That’s one of the findings from the Consumer Financial Protection Bureau’s new report (PDF) on the credit scoring industry. The study examined how Experian (EXPGY), Equifax (EFX), and TransUnion calculate credit scores. To come up with scores, the companies use information from thousands of different sources. Taken together, the score allows lenders to assess a consumer’s likelihood of paying back a loan, whether to offer a loan, and to calculate loan amounts and interest rates. Besides mortgage, auto, and educational loans, credit scores are also often a determining factor in apartment rentals and in hiring decisions (PDF).”
Click here to read the rest of Dwoskin’s article about the results from the CFPB’s credit scoring industry report.
Worth keeping in mind this holiday season is that, credit scores aside, putting gifts and holiday purchases on credit cards could end up costing you much more down the road–even if you caught a good sale. Because the interest you’ll end up paying if you do not or can not pay off the balance in full each month might end up negating the money you saved by buying the items on sale anyway.