Credit Advice

Credit scoring systems don’t change because it is the holiday season

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Credit Advice

Credit scoring systems don’t change because it is the holiday season

Dear Experian,

Do credit reporting agencies use the same criteria to evaluate credit usage during the Christmas shopping season?

For example, a person used 80 percent of his available revolving credit during the Christmas shopping season. Over the subsequent three months he pays 90 percent of the outstanding balances, and this person has done this yearly for the past five years.

In the above example does the person’s credit rating suffer temporarily, until the debts are paid down, or is the pattern established over the previous five years considered evidence that the person will likely pay the debts within three months as he has in the past, thus not having a negative impact on the person’s credit rating?

- CPT

Dear CPT,

The first thing to understand is that credit reporting companies, like Experian, do not evaluate credit usage or the information in credit reports. It is up to your lender to evaluate the information in your credit report and they may use credit scores to help them with the evaluation.

While it might seem credit scoring models change during the holiday season, they don’t. Neither lenders nor credit score developers say, “Aha! It’s time to add the holiday factor to our algorithms.” However, most people’s spending patterns during the holiday season do change, and that can impact credit scores temporarily. Your example illustrates that fact perfectly.

The temporary drop is not related to the season, but rather to how the credit cards are being used during that time period.

The issue is that he is charging a large portion of his available credit in a very short period of time. That is a strong indicator of credit risk, which may be reflected by a negative change in his credit scores. Repaying the debt over the subsequent months reduces his balances and demonstrates he is no longer at risk, so his scores improve again.

The temporary change in his scores reflects the temporary change in how he used his credit cards.

The impact of such a pattern depends on the individual’s overall credit history. A person who has a very good credit history may see little or no change in their credit scores. On the other hand, a person who already is having problems managing their credit may see a significant change in their credit scores as a result of such a spending spree.

Thanks for asking.

- The "Ask Experian" team

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