Migration from Credit Cards to Debit Cards Could Have Negative Impact on Consumer Credit Reports and Scores

by Mercator Advisory Group 0

Industry observers are raising concerns about the broad based consumer trend toward debit card usage over credit cards, and its potential depressing effect on consumer credit cards.

“While debit cards may help some people protect their good credit score by avoiding unnecessary debt and interest charges, it’s important to note that these financial tools do not afford the same potential positive impact on credit reports and scores as credit cards,” said Joe Mason, Senior Vice President of Consumer Services for Intersections Inc.

Mercator’s CustomerMonitor consumer surveys first documented this trend in May 2009, an attitudinal and behavioral shift which has also been well-documented in Visa and MasterCard operating stats and NY Federal Reserve studies showing declining numbers of credit card accounts and credit card payment volumes, while debit usage continued to grow. To the extent that consumers have closed old accounts or reduced opening new accounts, these behaviors could indeed reduce the number and age of credit trades which might be included in a consumer’s credit score.

On the other hand, lower volumes and revolving balances could also reduce a consumer’s utilization rate, thus improving their score. Because of the balanced structure of credit scores and the data points summarized (payment history, credit utilization, new accounts, length of history, types of credit accounts), consumers’ changing patterns of credit and debit use will likely be very slow in driving change to consumer scores.

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