Anyone who has ever applied for a loan or tried to rent an apartment knows the importance of having a good credit score. Yet there is little understanding of how those scores are devised.
A new paper released Thursday by the Consumer Financial Protection Bureau lifts the veil off of credit reporting, revealing that the way consumers use the plastic in their wallets weighs heaviest on their scores.
While that’s not too surprising, considering that Americans own nearly 610 million credit cards, the finding does cast new light on the gravity of failing to keep up with those accounts.
Researchers at the government’s consumer watchdog analyzed hundreds of millions of files submitted by the three largest credit agencies — Equifax, TransUnion and Experian.
Each agency receives updates on more than 1.3 billion individual accounts from some 10,000 companies in a typical month.
More than half of the information on the average credit rating report is supplied by the credit card industry. Credit scores are calculated from the information in the report and then used to measure the likelihood of a consumer repaying his or her debts.