According to the Consumer Financial Protection Bureau’s new report, credit cards might be hurting your credit score more than you know. The major agencies who collect debt information and provide credit scores are Transunion, Equifax, and Experion. These companies are responsible for calculating and providing your credit score to lenders. The score helps lenders determine loan amounts, loan interest rates, how likely you are to pay back the loan, and if they should loan to you at all. Along with mortgage loans, auto loans, and educational loans, credit card histories can also impact your credit history.
Statistics published with the CFPB show that approximately 57% of the credit lines on your average credit report are taken up by your credit card history. The remaining 43% are filled with mortgage loans (7%), educational loans (7%), debt collection agencies (13%), and auto loans (16%). Although the visibility of your credit card history on your credit report does not affect credit score calculations, it could affect your overall image with the lender more than it should.
Regardless, late card payments do hold weight and when it comes to your credit score, being behind on your card payments is considered only slightly better than being behind on a mortgage payment. When you have a high credit score of say 900 points, a 60 day late card payment might lose you 85-100 point whereas a late mortgage payment might lose you around 100-120 points. Although, using an example of a more average consumer with a score of say 750 and a 60 day late on a credit card payment, they could lose anywhere between 70-90 points which roughly equivalent to a 60 day late mortgage or car payment.
In the world of lending, multiple loans also weigh into your credit score more heavily than individual loans of the same monetary value. For example, let us say you had 5 small loans and you were late on all of them and you were also late on one large loan that happened to be worth the same amount of money as the 5 small loans together. Let us also assume that with the 5 small loans, the money you were late on added up to the same amount as the money you were late on with the one big loan. In this scenario, your credit score would more negatively affected by late payments on the 5 small loans than it would be by the late payment on the one large loan even though the monetary values are the same.
With consumers often carrying more than one card, late payments on credit cards can cause serious damage to credit scores. Often times consumers would never dare let a mortgage, auto, or educational loan slip but many times we don’t worry too much about those late card payments. Paying attention to your cards and making sure they are paid on time can save you credit down the road. A helpful tip might be to lighten your purse or wallet by getting rid of some of those excess cards you don’t need.