Most people know that frequent late payments and carrying outstanding balances on their credit cards can pull down their credit score. But did you know that even everyday spending habits can affect your credit rating?
In a case filed by the Federal Trade Commission against CompuCredit- a popular credit card issuer in Atlanta, the issue of how spending behavior affects a person’s credit score was brought up. According to the FTC, CompuCredit allegedly told its cardholders that they can use their credit cards anywhere without revealing the consequences. Charges made on playing billiards, marriage counseling fees, spa treatment, salon expenses and other personal costs may have a negative impact on your credit report.
Should spending behavior be included in calculating credit?
The three major credit bureaus use the FICO scoring system in calculating individual credit scores. Many companies and firms use the FICO scoring system as well. However, other firms may use a different system in measuring credit history.
Apparently, some firms use a “deceptive” credit scoring system that includes monitoring of one’s personal spending habits such as going to concerts and bars, going to the gym and other luxuries. This means, even consumers who submit their credit card payments on time can also be in trouble if they’re known to lead a “risky” spending style.
Lenders, employers, insurers and even landlords may be hesitant to grant approval based on the person’s spending habits. This raises a fear in consumers that companies can manipulate credit scoring systems according to their own standards. In this case, a person can suffer from a poor credit rating based on factors that are not disclosed unfair (ex. gender, race, sexual orientation, religion, etc.).
CompuCredit insists that it’s not committing any violation. The company explains that other firms use varying credit scoring systems and that more and more companies have been monitoring consumer spending behaviors as part of their credit history.
A Lesson to Learn
Regardless of who wins the CompuCredit vs. FTC case, the issue should become an eye-opener for consumers. When applying a new account or credit, consumers must really spend time in analyzing and understanding the Terms and Conditions in their contract.
If there are vague clauses or blank spaces in the agreement, do not sign it. Demand for a clear and concise explanation. As a consumer, you have every right to know the exact rules before binding yourself to any contract.
If you’ve been declined by a credit card company or a lender, request for a copy of your credit report from the three major credit bureaus immediately and check the status of your credit history.