Credit score and revolvers

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One of the more curious credit scoring tidbits I’ve run into is how paying off your credit card entirely every month means beans to your credit score.

The practice is financially responsible because you don’t pay interest on any leftover balance. And it seems, though there is no stats to back it up, that a person who pays off the monthly balance — called a transactor — is less likely to default than a person who revolves their balances and builds up interest. So why isn’t that a factor in credit score calculations?

The answer is mundane. There is no field in the credit report where a creditor can record if the borrower paid in full or just paid the minimum, according to John Ulzheimer, president of consumer education at Ulzheimer used to work at both Equifax and FICO, so he’s a good source on the subject.

I asked him if he thought transactors were probably better credit risks than revolvers.

“It seems like common sense that they would be,” he said to me. But, so far, no one in the industry has expressed interest in recording that information. In fact, the credit reporting fields that creditors fill out and submit to the credit bureaus look largely the same as they did 20 years ago.

Even if creditors wanted to submit information on revolvers versus transactors and the credit bureaus supplied a field for that information, FICO and other credit scoring companies would have to run models to see if that new data predict credit risk, Ulzheimer said. All these developments would cost money.

So, don’t expect any changes anytime soon. But this doesn’t let you off the hook when it comes to paying off your entire monthly balance. It’s smart and helps to keep a lid on debt.

Do you think credit scores should consider revolving balances?

Follow me on Twitter: @JannaHerron