Here we go again. Taken from an article by Martin Critsinger, AP Economics writer, "Consumer debt rose $1.3 Billion in November, the Federal Reserve said Friday (1/7/11). That follows a revised $7.0 Billion increase in October." The increases were most noticeable in two areas- Student Loans and Auto Loans. Credit card debt actually fell again (some 2 years +).
So is using debt again a good idea? Well, debt in general is a mistake in my opinion and many agree with me. Dave Ramsey, our grandparents, our gut instincts even let us know that "ohhh...maybe we shouldn't do this yet". In fact, what our grandparents taught us - buy it when you can pay for it - is probably the best advice.
The increased debt will help show the economy is growing however since 70% of total economic activity is CONSUMER SPENDING. So....in the very near future this increase in spending we have been informed of by the Federal Reserve for two months will show up in the sales and profits of companies. This causes the "numbers" to look more promising, which causes the "mindset" to move to "more optimistic". The general outlook looks better and so on and so on.
What is the impact on credit scores? Well, actually if the spending is on student loans and auto loans instead of credit cards....the impact might be positive in the next 4-6 months. This increase in credit scores will be occurring because student loans and auto loans are considered "desired accounts". The scoring model applies 10% of the credit score, which is 85.0 points to the types of accounts a person has in their credit file. Auto and student loans are the second highest on the list of desired accounts in a file trailing only mortgages. Department store accounts and finance company accounts sit near the bottom of the list of desired accounts.
Increased credit card debt for an individual will lower the credit score. After the initial negative of activity, which will last for 3-8 months or so....having a well paid personal loan (student or auto loans qualify) is a good thing. Pay it on time and keep your credit card balances low!