When talking about credit history, many people are aware that submitting late payments or carrying outstanding balances on their credit cards can hurt their credit. But did you know that your everyday spending behavior can also have a negative impact on your credit score?
That’s exactly what the Federal Trade Commission implies when it filed a law suit against CompuCredit, a popular credit card issuer in Atlanta. Based on this case, CompuCredit allegedly told its cardholders that they can use their cards anywhere but it did not disclose that their spending can badly affect their credit. Purchases such as going to the spa, playing billiards, attending marriage counseling, and other personal expenses could actually cause the cardholders to get penalized with higher interest rates and extra fees.
Should spending behavior be included in calculating credit?
Most companies depend on the FICO scoring system but other companies use other credit scoring systems developed by other financial firms. However, some firms do not clearly specify the formulas they use in calculating an individual’s credit rating.
Apparently, this “deceptive” system of credit scoring closely monitor one’s personal spending habits like going to a bar, attending a concert, going to the gym, etc. Aside from your payment history, the purchases you make or the specific bills you pay with your credit card can make or break your credit. Thus, even if you’re up to date with your payments, you can still be punished for the type of purchases you made. Consequently, you can easily be labeled as a “high risk borrower” in the eyes of lenders, employers, insurers and even landlords.
This raises a concern among consumers that companies may easily “tweak” scoring systems based upon their own standards. An individual can suffer with a lower credit score due to bias or unfair (ex. gender, race, sexual orientation, religion, etc.) that are not clearly disclosed.
CompuCredit maintains that it’s not violating any rule. It stresses the fact that different scoring models are commonly used in the industry and that more and more firms are actually looking at spending behaviors when analyzing consumer credit. But the FTC takes a firm stand that it is CompuCredit’s failure to disclose its exact terms that is in question.
A Lesson to Learn
Whatever the result of the CompuCredit vs. FTC complaint, consumers can learn a lot from the case. First, this proves the importance of reading and understanding your lender’s Terms and Conditions before signing up your contract. If certain clauses or statements seem vague or unclear, do not hesitate to ask and demand for a clear and definite explanation.
As a consumer and client, it is your right to know the exact rules of the agreement that you’re signing up for. If the company failed to disclose all the details that you deserve to know, you have the right to file a complaint against the company. Better yet, if the contract is doubtful, just take your business somewhere else and avoid the possible hassle and complications.
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