Credit Score Patterns Don't Lie, Experian Study Says

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Credit Score Patterns Don't Lie, Experian Study Says

MBA (2/2/2006) McAfee, Jamie Consumers with credit scores of less than 660 had a higher incidence of late payments as well as higher debt usage than consumers with scores of 720 or greater, according to a study by Experian Consumer Direct, Costa Mesa, Calif. While those consumers in the higher scoring group had higher debt balances, they generally used less of the credit available to them. "Oftentimes consumers focus too much on the three-digit number and not how their credit behavior relates to that number," said Ed Ojdana, group president of Experian Interactive. "By understanding the factors in their credit report that go into calculating their credit scores, consumers will find themselves more knowledgeable about credit scores and ultimately more prepared when interacting with a lender or other financial institution looking to extend them credit." The national study focused on five key factors: monthly payment, debt (revolving and installment debt), debt usage (percentage of available credit used), number of late payments (over the past six months) and number of inquiries (over the past six months). The differences between the two groups became readily apparent, the study found. For example, consumers with a credit score less than 660 have an average monthly payment of $290. The average debt (revolving & installment accounts only) for those with a lower credit score was $6,661. Among this group, the average debt usage (percent of available credit used) was 27.7 percent. Those with lower credit scores averaged 2.32 late payments (over the past six months). Among consumers with a credit score of 720 or greater had an average monthly payment of $724. The average debt (revolving & installment accounts only) among this group was $15,015. Average debt usage (percent of available credit used) was 17.8 percent. The number of late payments (over the past six months) was 0.0021 . "The first thing that jumps out is that consumer in Group Two pay an average monthly payment that's nearly two-and-a half times more than those in Group One, and that their debt for revolving and installment accounts is over twice the debt of consumers in the first group," Ojdana said. "But the more telling statistic is that, even though the average dollar amount of debt for consumers in Group Two is higher, they use a lower percentage of their available credit-nearly 10 percent less than those in Group One," Ojdana said. "In general, it's advisable to keep balance-to-limit ratios on credit cards as low as possible. Having a very high balance-to-limit ratio can adversely affect a credit score." Experian's study was compiled using the National Score Index, which is based upon a nationwide sampling of three million consumer credit profiles.