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Credit card history is one of the factors used by many financial institutions when determining interest rates and whether or not to grant a loan or even set insurance rates. By understanding the impact of credit cards on your credit history, you can begin to use credit wisely and carefully.
Open Accounts
One would think that having a number of credit cards open and available for use would be a good thing, but actually it can work against your favor, depending on how information about those cards is reported. In many cases, credit card companies will actually penalize you for not using your credit card on a regular basis or if you pay off your balance every month rather than making payments on your balance. Companies who use these kinds of practices have been known to raise interest rates or automatically charge a high annual use fee in order to force card holders to either use the card or give it up.
Credit Available
Credit card information is reported in a variety of ways. Not only is information about the balance due and payment history reported, but also the high limits of the card are also reported. Many companies take all of this information into consideration when determining whether or not to grant credit and interest rates. In recent history, the more credit you have available and the more likely you are to make regular minimum payments, the more likely you were to be granted a credit card, although it probably would have been at a high interest rate. Recent federal legislation is attempting to resolve this credit problem.
Usage History
One of the things many people do not know about credit card companies is that they closely monitor how credit cards are used and make decisions about interest rates and even payment requirements based on that usage. If the card holder is engaging in any “risky” behavior that they believe puts them at risk for defaulting on the card, they will raise the interest rates and even substantially increase payment requirements, including shortening the amount of time between payments. A good example of this type of penalization based on usage history is the use of a credit card for counseling sessions. Many therapists have begun to accept credit cards as a convenient form of payment for their clients. However, clients who take advantage of this convenience are surprised and dismayed to discover that as a result of it they are now considered high risk and their rate increase.
Late Payment Penalties
What many people are surprised to discover is that credit card companies consider any form of late payment to be a fair and justified reason to raise interest rates. Late payments need not be limited to payments on their credit cards, but the definition has been extended to include late payments on utilities, rent and mortgage payments, just to name a few.
Summary
In recent months, credit card companies have come under heavy criticism for heavy handed practices when it comes to how they use credit card history use to determine payment requirements, including interest rates and monthly payment rates. Through the wise and careful use of credit cards, it is possible to minimize the impact of credit cards on your financial health.
Credit Card History: Uncovering Little-Known Facts
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