Image courtesy of hin255 / FreeDigitalPhotos.net
The credit card companies are at it again. Remember, these are the same companies that think you’re so stupid that they actually created a commercial that suggests it would be a great idea to buy things for your friends just to earn credit card rewards. What are they up to now?
Credit card companies are offering to give you your credit score for free.
On the surface, it sounds like a good deal for consumers. Obtaining your credit score will usually cost you somewhere around $20. The credit card companies are doing us such a nice favor by providing us our credit score each month for free, right? Wrong.
The credit score industry has thrived on the fact that the formula used to calculate your credit score is more closely guarded than the recipe for The Crabby Patty in SpongeBob Squarepants. It’s calculated based upon our actions, and is something that can decide whether we can borrow money for very important purchases such as a car or a house.
Thank you, credit industry, for FINALLY giving us something we should have anyway.
Oh but wait, it get’s better. Remember, not just anyone can get free access to their credit score. It’s only available to people who have a credit card. Thus the people that are able to see their credit score for free are likely accustomed to buying things with credit. According to a so called financial planner in this article, this is fantastic news because consumers “should be watching that score and asking how they could improve it.”
The number one way to improve your credit score is to USE MORE CREDIT.
We have finally arrived at the motivation behind credit card companies want to provide your credit score. It’s a self-serving method to squeeze more money out of consumers, and create more profits for them.
If you have a high credit score, the message to you is simple: If you want to keep your nice and shiny credit score, you have to keep using credit. Even if you pay your balance in full each month, merchants pay a fee for each credit card transaction. You keep using your account, credit card companies keep getting paid.
If you have a low credit score the message to you is this: Make your payments on time, oh, and keep using credit. Think about who may fall into this category. If you have a low score, you likely already have a high revolving balance, have missed a few payments, and your interest rate is sky high. High balance, and a high interest rate; from a profit perspective, who better to try to get to use MORE credit?
If you don’t have a credit card that will provide you with your credit score (not all do), why not get one? When that piece of plastic shows up in the mail, chances are you will use it at some point, which means more money for them.
I’m not trying to tell you not to use credit cards. That’s a decision everybody should make themselves based upon their own personal situation. I just want to ensure you know that credit card companies are not providing your credit score as a favor to you, or because they like you. The credit industry is a self-feeding machine. If you want a good credit score, you have to use credit. If you want to keep a good credit score, you have to use credit.
This is just them encouraging you to feed the machine.
Now that you mention it, I’m surprised credit card companies weren’t providing free credit scores earlier. You are 100% correct that it will cause people to use credit cards more, and that usually isn’t a good thing.
It’s sort of like the credit card companies handing out your grade of how well you’re using THEIR product. Very strange!
I’m surprised they are not telling you how much each purchase would raise your credit score. 🙂
SHHHH, don’t say that too loud, Brian….you might just get exactly that!!! 🙂
Great analysis Travis. It’s good practice to check one’s wallet anytime a lender of any sort offers something “free.”
On a broader note, allow me a short rant. 🙂 The whole credit score obsession phenomena is an artificial frenzy whipped up by the sellers of credit scores to generate revenue for themselves. I HAVE NEVER CHECKED MY CREDIT SCORE, NOT EVEN ONCE! Why? Because the actual number is useless. Yes, we all need to understand the importance of maintaining good credit, and we should know the behaviors that will lead to less than optimal credit. To that end, my recommendation is to Google “Understanding Your FICO Score” and download the booklet available through the first search result. Pay particular attention to the “Tips” sections that begin on page 8. Follow the tips, and your credit will be as good as it can be, end of story. Who cares then what number some company attaches to your credit history?
Exactly, Kurt….keep on rantin’! I check mine (for free) via Credit Karma…only because it’s free and it gives me an idea where it’s headed. I would never pay for my credit score, and I have never taken any explicit action to try to make it better. Pay your bills on time, be responsible with your money and your credit score will take care of itself!
Sad, but true. It certainly is good information for you to have, but altruism isn’t driving your credit card company’s reason for providing it. It is a great PR/marketing ploy however. 🙂
Yeah, I don’t think altruism will ever be the driving force behind anything the credit industry does. It’s all about numbers and money. I don’t think they can see the people standing behind the numbers….
We had really high credit scores when we were drowning in debt. If you don’t miss payments and have huge credit lines that are not maxed out, you can owe tons and still have a great score. I wish credit scores weren’t so tied into everything, but even car insurance cost is based on credit score in part, so I like to monitor my numbers, but I agree that getting a credit card just to check a credit score is not a good reason to get a credit card. Congress likes to pass all sorts of laws to protect consumers. It would actually be beneficial if they took the mystery out of it and made scores available and free at any time.
Good point, Kim….I had $109,000 of credit card debt, yet since we didn’t miss any payments my credit score was really good. The only knock was the utilization % and the overall amount of credit. But guess what? That isn’t nearly as big of an effect as HAVING and continuously USING credit!
I don’t know that getting my credit score from my credit card company has caused me to use more credit. But I can see how others might be enticed my such a perk and then fall into trouble with their new line of credit.
To a lot of people, Stefanie, (including myself), having a credit card sitting there is a license to spend even if I don’t have the cash. It’s also a way to get around budgeting……both negatives in my book.
“The credit score industry has thrived on the fact that the formula used to calculate your credit score is more closely guarded than the recipe for The Crabby Patty in SpongeBob Squarepants.” Lol, that’s awesome Travis! I’d love for there to be clarity with the score, but I know that would be too easy for the card issuers. The simple fact is that they use the score, which as I understand is a month or so behind anyway, to get you to sign up for their card and use it. Great for marketing, but not really so for the uninformed consumer.
Glad you enjoyed my SpongeBob reference John. 🙂 The card issuers don’t want clarity..they want the smoke and mirrors in front of the score so THEY can tell you what you need to do!
Actually, using credit lowers your score. Having credit increases it. Of course, making payments is also key…
My understanding is that if you get a credit card it will help your credit rating. If you let it just sit there with a zero balance, however, it isn’t nearly as beneficial as if you USE it and make timely payments. So, guess what the credit industry tells us to do? USE IT! They entice us with rewards programs, introductory interest rates, etc to get us used to using the card. They get paid for each transaction, we pay them interest, AND we get desensitized to swiping the cards. All because they TOLD us we needed to do it. Bad deal.
I like the way Dave Ramsey puts it. “Myth: You should get a credit card to build your credit . . . This myth means we have to get debt so we can get more debt because debt is how we get stuff.” I’m very interested in the debate surrounding credit cards and credit card companies among debt bloggers and other financial bloggers. It seems to be a hot-button topic. I agree with you in your assessment of the credit industry being a “self-feeding machine”. And what a great big machine it is.
Exactly….as Brad Chaffee, the original EOD would say, it’s not a credit score, it’s a DEBT SCORE.
What you say isn’t entirely true, using more of your available credit will actually lower your credit score. Anything over a 30% utilization ratio is a big red flag. Applying for new credit will also temporarily lower your credit score.
True, William, having a high utilization rate will drag your score down a bit….but so will having a constant ZERO balance. The credit industry will tell you to use your card, but not too much. Keep a balance, but not too high. Hmmm….sounds like the ideal situation for THEM to make money!
HA! This is so timely. I just looked at my credit score yesterday through my credit card’s new feature. I was surprised at the different scores from the two different companies. One was very high and the other was what I had predicted it to be. I was more of boggled than inspired to spend more.
But my husband checked his and it was much lower than what we had thought (two missed payments… ugh). It did make us think about not churning anymore this year.
I’m always amazed at how different the three scores are – the only time I’ve seen all three at the same time was when we refinanced our mortgage, and through a secret shop gig. Seems to me they’d be more consistent than that, wouldn’t you think? I’m much more interested in simply checking my credit report to ensure nobody is doing something they shouldn’t be doing with my Identity…
When I saw those ads, I couldn’t help but wonder if it was a bad thing that your score would be constantly probed in order to provide those reports..
From what I understand, Jefferson, it doesn’t affect your credit rating…it’s probably the “soft pull” that the banks talk about. I never understand the difference….getting your score is getting your score. Maybe since it’s not being used to get new credit that’s what a soft pull is? I’m just guessing at this point. 🙂
We’re those people that use Discover for nearly everything since we’d buy it anyway and this gives us 1-5% cash back. But we’re also those people that have NEVER carried a balance or even paid 1 cent in interest, ever, and I’ve had a card since I was 18 (so that’s 13 years now). We also have tracked our spending for more than a decade and stay on track that way…not allowing ourselves to splurge crazy for too long at any time. I didn’t care when they started including our credit score on our statements. I’m also happy that Discover has never made a commercial to my knowledge that acts like credit card rewards make up for extra spending. When I see those, I roll my eyes and am thankful my friends are not that dumb. But now that you point it out, I am very surprised they didn’t do this before to increase spending. Very odd that they passed on this opportunity for so long, LOL.
Responsible people (like you) don’t care much about their credit score because you know it’s good. Maybe Discover hasn’t made such a commercial because they’re slightly (using that term loosely) more ethical than other credit card companies. Thanks for sharing your thoughts, Crystal!