New Role for Credit Card Payments in Credit Scores

Up until now, it’s not been hard for those with credit cards to understand how to avoid their plastic having a negative effect on their credit scores. All they had to remember was:

1. Make every payment (at least the minimum due) every month on time.
2. Keep balances below 30% of the cards’ credit limits. The lower that percentage the better, but the difference 10 and 20% make to your score compared with 30% is minimal.
3. Apply for new credit cards only when you need them. Having lots of recently opened accounts of any sort may be harmful.

Observe those three rules, and you’d have every reason to expect your cards to help rather than hinder your achievement of a good or great credit score.

Credit Cards and Scores: New Factor

But now a new factor might soon affect your score, according to a recent report from The New York Times. It suggested that at least one of the Big Three credit bureaus was already using the amount by which you pay down your cards each month to help calculate your score. Other bureaus and scoring companies may well follow suit.

The purpose of this is to differentiate between “transactors,” who pay down their balances in full each month, and “revolvers,” who routinely carry forward (“revolve”) balances from one month to the next. The theory is that transactors are likely to be more creditworthy, and so deserving of higher scores, though a FICO spokesperson told the Times that it was still studying the data, and was yet to change its systems. FICO is the company whose credit-scoring technologies are used in over 90% of lending decisions in this country.

If FICO and others in the credit-reference industry do in future begin to differentiate between transactors and revolvers, it could see the latter’s scores being downgraded even if they always make minimum or higher credit card payments on time every month. And that could see a significant change in how people view their plastic.

Credit Card Companies Likely Want Status Quo

This could be bad news for credit card companies because it could result in fewer revolvers. After all, would you use your credit cards to borrow if you knew that was likely to make your home, auto and other loans more expensive?

And the interest those who roll forward balances pay represents an important revenue stream for these purveyors of plastic. Indeed, within the card industry, transactors are known, unflattering, as “deadbeats,” because those who never borrow generate little profit.

Credit Scores Like Ketchup and Ice Cream

People talk about “your credit score,” but in fact pretty much everyone who has one has many. There may not be quite as many varieties of these as Heinz has, nor flavors as Baskin-Robbins, but it’s perfectly normal for an individual to have a couple dozen.

There are three main reasons for that:

1. Some lenders prefer to use older versions of FICO and other scoring applications, sparing themselves the expense of upgrading their systems. So they may use scores calculated slightly differently.
2. Scores are often often customized so that they’re especially good indicators for particular types of borrowing. So the score auto loan lenders see for a particular consumer may be different from the ones supplied to credit card companies, which may be different again from the ones viewed by mortgage lenders.
3. There are three main consumer credit bureaus (Equifax, Experian and TransUnion), and, although they all use FICO and probably VantageScore technology, they each tweak calculations to provide their own proprietary versions of your score.

Of course, the factors that create a good or great credit score remain the same, and whichever of your score or scores a lender views, it’s likely to reflect your past behavior. But it is worth being aware that, when you access your own score, the one you see may be different from the one used to decide whether to lend to you — and, if so, at what interest rate.

More to Come?

Using your status as a transactor or revolver to help calculate your score may be just the beginning. Although the companies behind scoring systems are likely to be conservative about change, so as to maintain the credibility and predictability of their products, they are also constantly looking out for ways to better satisfy the credit card companies and other lenders who pay them.

Already, FICO is working on so-called big data concepts, though these are currently intended to help clients with marketing rather than credit scoring. But, over the medium and long term, we might see all sorts of new factors affecting our perceived creditworthiness. SOURCE

 Facebook   Twitter   LinkedIn   Website

Tips to reduce chargeback

Credit cards have revolutionized the way of buying and selling merchandise online however they have also created a mess for e-commerce retailers in the form of chargeback’s. Being an honest retailer, you can defend such kind of chargeback’s if you provide the correct evidence however such type of exercise takes a lot of time and effort. The following prevention indicators may assist you in reducing the risk of fraud-related chargebacks and losses. In addition, card-not-present merchants should develop fraud control policies and training for employees.

The below mentioned points simply do not mean that retailers should avoid processing such orders however they must take extra care while processing them and should try to know more about the prospective customer.

Shipment in High Risk Location/Country. A large majority of fraudulent orders come from places like Middle East, Asia, and Africa. Being an online retailer, whenever there is an order for some products where shipment is to be made in high risk location or country then you must consider it as a red flag & must avoid to process such an order until and unless the ordering customer is well known and trust worthy.

Investigate Bulk Orders from New Customers. Whenever you receive an order from a new customer for high demand goods in bulk quantity rather than normal order then you must take caution in processing such kind of order.

Multiple orders with different credit cards but similar shipping address. Whenever you receive multiple orders for the products from an individual with different credit cards numbers however the shipment address is same then you must consider as a prospective fraud. Generally hackers steal credit card numbers form online resources and use it for fraudulent activities.

Different Billing and Delivery Addresses. Watch out for cases when you receive multiple transaction on one card with single billing address but multiple shipping addresses.  It’s recommended not to execute the order whenever you receive such an order unless knowing the valid reason for such kind of difference.

Shipment to P.O. Box Address. Being an online retailer you must know where your merchandise is going to be shipped. The area must be well known as most of the fraudulent people want to ship their orders to vacant properties, i.e: P.O. Boxes so that they remain untraceable. 

Use of Suspicious or free e-mail services. Legitimate users always use their real names in their email addresses. If you receive an order from unknown customer who is using suspicious email address like joe123$$$@hotmail.com etc then you must try to avoid such kind of orders.

Request for Over Night Shipping. Whenever you receive an order for the product where the customer is demanding over the night shipment even at higher cost then you must consider it as alarming. Most of the fraudulent people want to rush their desired product over the night regardless of the cost.

By following the above mentioned proactive approach recommended, you can surely minimize the chances of chargeback’s.

PAYMUNDO

( Your global e-commerce solution provider )

info@paymundo.com

http://paymundo.com