Dear Opening Credits,
Is it true that if I use my credit card at fast food places,
my credit score will decrease or that it will affect my score in some way
because it looks like I cannot afford to buy food? I pay my bill in full every
month. -- Burger and Fries Lover
Dear Burger, The fast answer is no, where you eat doesn't have an impact
on your credit score, but that's not the full story. Your credit score is just one of the many factors that issuers use when making lending decisions, and while paying plastic for that Big Mac won't hurt your credit score, it might raise issuers' eyebrows for just the reason that you described.
Historically, consumers have turned to fast food in
tough economic times, and these times are no different: The National Restaurant Association
expects a 4 percent increase in sales at fast food restaurants in 2009. The fare is often belly-warming, feel-good and
inexpensive. One fast food meal can cost between $5 and $7 or so, cheaper than
other, more high-brow dining options.
As the economy struggles, eating at these restaurants can make good economic sense, and while eating there won't do much damage to your bank account, it won't lower your credit score either.
"That doesn't affect your credit score," says Susan Thomas
of the credit bureau Experian. "There are a lot of factors that make up your
credit score, and whether or not you use your card at McDonald's doesn't affect
it by any means."
The key to your credit score is how you pay your bills, not
where you shop. Steven Katz, director of
consumer education for TrueCredit.com, a division of the credit bureau
TransUnion, says you should be focused on making on-time payments
every single month. Making at least the minimum payment and doing it on
time will
keep your credit score in pretty good shape. Here at CreditCards.com, there's a story about
the ABCs of credit scoring , from which you can learn more about what can make a difference
to your score.
But as I said earlier, credit scores aren't the only factor examined when making lending decisions. A recent CreditCards.com story revealed that lenders are now making decisions about your creditworthiness based on your purchasing behavior. Some lenders believe that
purchases made from certain kinds of merchants (fast food restaurants, thrift stores, casinos) indicate that the consumer making the purchase is more likely to exhibit risky behavior in the future. That could lead to slashed credit limits, bumped-up interest rates and other such penalties.
Credit card issuers can't see exactly what you buy. The standard information passed on by merchants includes: the purchase date; the name, city and state of the merchant; the total purchase amount; and a transaction reference number. The store also provides its merchant category code (MCC), a four-digit number that indicates the company's type of business. What issuers can see, however, is a general pattern of buying. For example, if you've spent $20 or more at a fast-food restaurant 10 times in the past six months, they may make certain assumptions about you, like the ones above. The same thing goes if you frequent massage parlors, thrift stores or other such establishments.
This can be a dangerous game. It raises privacy issues about what information can and should be shared. It could also lead to issuers jumping to some very wrong conclusions about you. After all, there are countless reasons for choosing to use your credit card in certain instances. Perhaps you intended to use cash but forgot to go to the bank. Maybe you're charging more
so you can accumulate airline miles with your card. Maybe you didn't want your
date to watch as you counted out the bills to pay the tab. It could be simply
that you like the convenience of using plastic.
Karin's money makeover column "Get With The Plan" can be seen every Sunday in "The Star-Ledger" and "The Trenton Times." She also hosts and writes "Money 911," a multimedia series for MSN Money. Before writing became her main focus, Mueller was the executive producer of CNBC's The Money Club, where she led the team that won the network's first ever Cable ACE Award for Business and Consumer Programming. Mueller lives in New Jersey with her husband, three kids, one guinea pig and one leopard gecko. Whatever they don't eat goes into her retirement savings accounts. A comprehensive archive of her writings is available on her Web site, www.KarinPriceMueller.com.
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