We talked the other day about credit scores, how they are calculated and how student loans impact your FICO score. How you use your credit cards is a significant part of your credit score, but increasingly, many people are eschewing credit cards and relying on debit cards. This can be driven by many factors. First, if your credit score is lower, your interest rates will be higher and so you may want to rely on cash. Second, you may not want to get into debt and so you don’t have a credit card lying around to tempt you. Third, you may have had a bad experience with credit cards before and have decided that avoiding them altogether is where the smart money is at.
If you are paying with cash and not racking up debt, it seems like you are in better shape than many people financially, but your credit score will suffer in this case. Similarly, if you own your home outright, paid cash for your car and aren’t in debt, you are in good shape financially, but your credit score will be a shambles. The FICO scoring system benefits those that are using debt to finance their lives, but punishes those who operate on a fiscally responsible cash basis.
Money guru Suze Orman doesn’t think this is fair and we agree. She recently started a petition on Change.org directed at Senator Elizabeth Warren, titled Mandate the credit bureaus to include debit card holders’ information on credit reports. We think this is a great petition and are rallying around Suze to get this petition the attention it deserves. Here’s what her petition says and why we think you should get behind her call for action and change:
Suze writes, “Debit card users are at a serious disadvantage to building financial security because of senseless policy. I am determined to make sure that changes — and am asking you to join me in ensuring that debit card users obtain reporting parity.” She lists just a few of the financial transactions that can be impaired by a lower credit score even though you are just as (or even more) credit-worthy than those who credit spend. This includes apartment rental and cell phone contracts. Another she doesn’t mention is auto rentals – have you ever tried renting a car without a credit card? It’s insane.
The petition asks that debit card transactions be reported to the three credit agencies – Experian, Equifax and TransUnion – and that the FICO scoring algorithm be adjusted to incorporate this data. Not all debit transactions would be recorded – buying groceries or gas, for instance. But paying bills on time, such as utilities or your cell charges, with a debit card would be reflected under Suze’s plan. This would be a huge boon to those that prefer not to transact using credit cards and incur debt.
To support this petition, click here. 300,000 signatures are needed and as of today, it’s getting close. Sign on to support the measure today. Also, be sure to follow Suze Orman on Twitter for tons of financial tips and practical money advice.
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