The Slippery Slope of Credit Cards


By Wilfred Coombs, 

A credit report is like a balance sheet.  It reflects a credit profile at a point in time.  It contains both assets and potential liabilities.  In order to maintain a good credit score, you must be aware of the rules for both. 


          Your credit profile is designed to be a measure of your credit worthiness.

However, it is just as much a measure of you continuing relationship with the major financial institutions.

          Example:  An aunt of mine who was in her nineties passed away and I was named Executor of her estate.  As suggested, I pulled her credit report to make sure she had no outstanding debts. Upon reviewing the report, I was startled to see that she had no credit score!!  Not a low score, but no score!!

Here was a woman who paid her bills the day after she received them.  So why no credit score??  After some analysis, I arrived at the answer.  She had advanced in age to the point where she no longer had a need for a mortgage or a car loan, and had cancelled her credit cards some years earlier because she used them so scarcely.

I then came to the realization that her credit report was no longer a reflection of her credit worthiness, but the absence of a credit relationship with financial institutions.

Since inception of credit cards in the 1950’s they have risen to become the dominant factor in determining your credit score.  There are a variety of reasons for their increasing importance but the major reason is the sheer volume of credit card activity throughout the world. All of those transactions are almost instantly reported on our credit profiles.  When you use your credit card your transaction is reported to all three major credit bureaus within 24 to 48 hours after the transaction occurs and the credit card companies pay a fee for each transaction.  The result is they are, by far, the major source of revenue for all three bureaus.

These realities can be a benefit or a major problem for you depending upon your cash flow situation and your ability to pay your bills on time. If you pay on time and keep your balance below twenty five (25) percent of your credit limit it should help your score. Conversely, if you fail to make a payment on one or more of your cards within thirty days of the due date you have a problem.

And I mean thirty days!!  On the 31st day the credit card provider automatically reports the payment as exceeding the thirty day limit.  The trade line then moves from being an account in good standing to “derogatory”.  It is now becomes a negative factor detracting from your score and there is nothing you can do to change that status. Filing a dispute with the credit bureaus is probably not going to work.  In addition, the credit card provider will probably raise your interest rate and charge you expensive late fees.

Now you may think no big deal, I’ll just make the minimum payment. But keep in mind that every time you do that it raises your debt ratio, another major factor in lowering your score.


Back in BCC (before credit cards) small businesses had charge accounts with local vendors.  The biggest benefit to the business owner was the personal relationship that developed between them.  If a financial emergency occurred and the business owner could not meet his payment schedule he could contact the vendor and ask for “forbearance”, meaning the vendor could grant an extension of the deadline or some restructuring of the payment.

With credit card companies it’s not that simple. Even if you manage to negotiate a different payment schedule with your card provider it will still affect your interest rate and you will probably be charged a late fee.

The bottom line?  Credit cards are a nice convenience and can be a useful tool as long as you can meet the payment requirements and keep your balances low.  If you have cash flow issues that prevent you from meeting those standards, they can quickly diminish your credit worthiness and add significantly to your cost of doing business.


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