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Credit Scores Refined as Credit Card Debt Drops

by IndexCreditCards IndexCreditCards

Credit Score Tightening

Yesterday, TransUnion, one of the big-three credit bureaus, unveiled an enhanced form of credit score that could make it more difficult for some Americans to obtain credit cards. According to TransUnion, credit bureaus traditionally calculate credit scores using four main forms of historical data:

    • Past delinquencies

    • History of responsible use

    • Debt level

    • Utilization (the proportion of your credit limits that you actually use)

    However, the company is now able to offer--in partnership with ID Analytics--a fifth dimension based on people's "stability." And it claims that this additional perspective can, in some circumstances, reduce bad credit decisions by up to 46%.

    Credit Card Debt Problems Down Again

    Also yesterday, Moody's Investor Services published its monthly survey of credit card charge-offs, which is industry jargon for the balances that credit card companies write off because they think the debts have become noncollectable. That doesn't, of course, mean that nobody will try to retrieve the money; anyone whose balance is charged off should expect to hear fairly soon from a collection agency.

    The first bit of good news is that Moody's says that charge-offs on credit cards in May fell for the second month in a row. Jeff Hibbs, an analyst with Moody's, says that the company believes that "...credit card charge-offs have passed their peak levels of this credit cycle."

    Credit Card News--Things Are Getting Even Better

    The second piece of cheerful credit card news to arise from the Moody's report concerns delinquencies, which are overdue payments on balances that are yet to be written off. In May, these fell to their lowest level since November 2008. Early stage delinquencies (accounts overdue by 30-59 days) were even healthier, and the company says: "The rate is approaching its historically low ranges of 2006-7."

    All of this suggests that fewer Americans are getting into trouble over credit card debt. And that has to be a welcome thought for card holders, credit card companies, and anyone who cares about the health of the U.S. economy as a whole.

    Prepaid Credit Card Swipe Fees to Be Unregulated?

    Regular readers may recall that legislators on Capitol Hill are currently deciding whether to regulate "swipe" (or "interchange") fees, which is the cut taken by credit card companies and payment networks every time a merchant swipes a card. A House-Senate conference is currently hammering out the details, but it appears that lobbyists have won a concession over plans to limit swipe fees on prepaid credit cards--as they're oxymoronically called.

    Earlier today, the Washington Post reported that the conference had decided not to regulate these fees, mainly because to do so could harm poor users who often receive state benefits through fee revenue. If swipe fee revenues are reduced, issuers might make up the difference with higher fees for users.

    Credit Card Use Without the Credit

    As discussed in previous columns, prepaid credit card use can prove expensive because they often have high fees. However, if chosen with care, prepaid cards can provide a convenient payment method for those for whom traditional credit cards are not appropriate.

    One such group is teenagers, other groups include those who cannot--or do not wish to--access mainstream cards.

    Published 06/24/10 (Modified 07/09/14)

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