Credit cards weigh heavily on consumers’ credit ratings

These days, millions of Americans have been able to repair their credit to the point where they can begin borrowing again with affordable terms, but many may still have difficulty in obtaining this type of financing because of the way in which credit rating agencies consider consumer scores.

When it comes to determining a consumer's credit standing, it seems that credit cards account for more than half of all trade lines in the credit reporting industry, meaning that these will disproportionately affect a borrower's credit score, according to new data compiled by the federal Consumer Financial Protection Bureau. In fact, there are more than 1.3 billion such trade lines in the industry, related to the 200 million or so consumer credit files held by each of Equifax, TransUnion and Experian, coming from about 10,000 companies that furnish account data.

"Today's study is another step toward bringing more clarity to the confusing world of credit reports," said CFPB director Richard Cordray. "It will help educate regulators and consumers about how this important industry works. If consumers know how these companies handle their credit histories, they can make better decisions on how to handle their financial lives."

A closer look at these trade lines
With so much data about consumers moving back and forth between providers and credit rating companies, often without consumers fully understanding the process, it may be difficult for borrowers to know what goes on when it comes to determining one's credit standing, the report said. For instance, while it may be reasonable to guess that a person's credit rating is made up equally of all their various accounts, that may not always be the case.

For instance, trade lines for bank-issued credit cards make up 40 percent of all information gathered by credit reporting agencies, and another 18 percent come from store-issued credit card accounts, the report said. By contrast, mortgage lenders only provide about 7 percent of all data, and just 4 percent are from auto loan issuers.

Further, it's important to note that when it comes to gathering credit reporting data, the bureaus really only rely on a small number of massive companies, rather than all 10,000 in the industry, the report said. Currently, about 57 percent of all trade lines come out of the top 10 participants in the industry, and the top 50 provide about 72 percent. In all, the top 100 issues about 76 percent of all trade lines.

Other issues borrowers may encounter
Of course, when it comes to dealing with one's credit report, there is at least some onus on the consumer to make sure everything is in order, and it seems that many may not be as diligent as they could be, the report said. Less than 20 percent of all Americans – 44 million – obtain at least one copy of their credit reports every year, which may make it more difficult for them to know when their accounts have been affected by misreported or otherwise unfair accounts.

But when consumers do order copies of their credit reports and find unfair markings on them, many fortunately file disputes with the companies that issued the document, the report said. And of those disputes, of which there were about 8 million last year, nearly 40 percent related to accounts that were sent to collections. That kind of debt is five times more likely to be disputed than issues related to mortgages, but experts believe that this may be the result of consumers having a willingness and incentive to dispute any information they perceive as being negative. In all, there were between 32 million and 38 million disputed items on credit reports in 2011.

When it comes to these disputes, many are forwarded by the credit reporting companies to the firms that issued the original information, the report said. These companies eventually receive about 85 percent of all disputes, compared with the 15 percent that need to be resolved by credit reporting bureaus themselves. However, the CFPB also found that in many cases, all the necessary data for resolving such a dispute wasn't always being forwarded to the data providers, which may make resolution more difficult.

All this information from the CFPB only serves to underscore the importance of more borrowers taking the time to order copies of their credit reports and check them over closely. Doing so will allow them to determine whether there are any unfair markings on the document which may be having an adverse effect on their overall credit standing. If such an entry is discovered, it can be prudent to contact a credit repair company, which may be able to help them clear up the issue expediently.

Posted in Uncategorized
Learn how it works

Questions about credit repair?

Chat with an expert: 1-800-255-0263

Facebook Twitter LinkedIn