You may have a mortgage, a car loan, and medical debts that appear on your credit report, but the biggest impact on your credit score comes from the plastic in your wallet.
Credit scores are heavily weighted to reflect credit card use over other kinds of financial activity, according to a Consumer Financial Protection Bureau (CFPB) study released this week. The Key Dimensions and Processes in the U.S. Credit Reporting System report examines the way major credit bureaus – TransUnion, Experian and Equifax – process information in order to create consumer credit scores.
A little score with a big impact
Credit scores play an important role in whether or not consumers are granted loans for homes, cars, college tuition, and even whether or not they get jobs. Many employers look to credit scores to determine an applicant’s suitability for a position.
Having a credit card and using it responsibly has a huge impact on that credit score – nearly 60% of the information on a person’s credit report comes from credit card issuers.
Key findings in the report include:
- Credit reporting agencies have over 200 million credit reports on file
- They collect information from over 10,000 different agencies that report on over 1.3 billion accounts per month
- More than half of all information furnished to credit bureaus is given by the 10 largest institutions including big banks and credit card issuers.
How many credit reports contain mistakes is unclear, as there are many conflicting numbers on the issue. Mistakes can creep into credit reports several ways. They can come from:
- consumers themselves providing faulty information
- bureaus matching the wrong data to names
- lack of identifying information in government files
- fraud and identity theft
The study was designed to “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,” said Richard Cordray, director of the CFPB.
The bureau was created by President Obama in July 2010 as part of the Dodd-Frank financial reform. Prior to its formation, there was no federal oversight of credit bureaus or their reporting methods.