July 8, 2009
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News: Red Flags Affecting FICO Scores
As if credit card consumers don't already have enough to worry about, Kiplinger's published the results of a study by Fair Isaac that warns consumers to be extra careful about where they use their credit cards. Fair Isaac is a leader in business consulting services and enterprise decision management systems and the developer of the FICO score. The score measures a consumer's credit risk and is used by all credit card companies and lenders worldwide in determining what, if any, credit will be extended them. The report indicated that lenders are using information collected on consumers' spending habits to determine if they are becoming an increased risk.
According to Robert Manning, author of "Credit Card Nation," lenders could view you as a potential higher risk if you use your card for the following purposes:
- Traffic court - Traffic tickets make you look reckless.
- Dollar discount stores - switching to discount retailers makes it look like you're worried about your economic circumstances. Use cash, not your credit card when shopping at these types of retailers.
- Retreading your tires - Strange but true. Suddenly buying retreads could signal you can't afford new tires.
- Adult toys - Credit card companies see these as escapism and think you are trying to escape your financial woos. The same thing goes for porn and strip clubs.
- Marriage Counseling - Therapist say money problems are one of the top 3 reasons marriages have problems. It could also signal a potential divorce. Divorce is a major cause of financial problems.
- Lottery tickets - Lottery tickets means gambling. Gambling signals trouble and credit card companies are looking to stay out of trouble.
- Cash advances - Lenders may think you are trying to bridge the gap between paychecks. Start building a rainy day fund instead of relying on cash advances.
- Personal body treatments and spa trips - Unless you are a regular at the spa, lenders might think you are trying to relax from the stress of financial problems or difficult job situations.
- Income taxes - robbing Peter to pay Paul is an absolute no, no. Talk to the IRS to devise a better solution.
- Alcohol - Excessive drinking signals job stress, financial stress, or relationship stress. The bottom line is, carry cash and exercise care and wisdom when using your credit card. Your lender is watching.