Home > Credit Score > How the Mobile Wallet Might Impact Your Credit Score

Comments 0 Comments

E-wallets are going mainstream, and as more consumers buy in they should be questioning whether the technology could affect their credit score.

Consumers might not see an immediate parallel, but there are a few factors for mobile wallet users to consider. For one, the mobile wallet industry is still young, and the privacy and security of these systems are a work in progress. Also, mobile wallets make it easier to impulse shop, and the jury’s still out on whether such devices like Google Wallet and PayPal’s digital wallet could negatively impact one’s financial behavior. It’s a lot to take in, and given all the credit fraud going around, it’s a decision worth thinking through. So before you take a walk on the digital side, let’s examine two of the issues that you should watch out for.

Digital Privacy and Security

Perhaps the biggest drawback to joining the e-wallet revolution is the uncertainty surrounding it. A Pew survey released in April of 1,021 tech experts found that most of them predict “mobile payment systems” will go mainstream by 2020, though they largely agreed it would take several years for it to truly catch on, due to privacy concerns and the barriers to businesses adopting the systems. Yet some experts argue it could take even longer, because they believe those concerns about privacy and fraud are significant.

Consumers remain wary of how secure their information is. And it’s no secret that hackers are working to find their way into consumers’ mobile wallets. For example, even as Google Wallet works to secure its network, third party researchers have hacked into the system, according to American Banker. The same article notes that Androids are the most targeted for malware, which can also expose users to greater risk of fraud.

Hacking and malware aside, a study by Symantec earlier this year highlighted the risks of users’ plain old forgetfulness — the lost smartphone. The study found that 96 percent of people who picked up lost phones tried to access personal or business data on the device. And 43 percent tried to access an online banking app. And an unprotected mobile wallet could serve as an easy entry into the financial life of someone who’s lost their phone.

Impulse Spending

Another issue to consider is how the e-wallet will impact your spending. Not everyone can restrain themselves when presented with a flurry of push notifications soliciting the latest free coffee or daily deal on their smartphone. With PayPal’s digital wallet, for example, users’ habits are monitored to help the service customize its referrals. But while that’s great for finding deals on products you might want to buy, the pitfall lies in how easy it is to spend when really thinking. Or in the store. All your credit information is tied to the wallet, so you can order a mocha from across the street at Starbucks and forget about it. You might even schedule a service, and forget that, too. The problem is that it might not feel like you’re spending all that much, but you will be because it’s so easy to do. And as Credit.com personal finance expert Gerri Detweiler points out, your score could be hurt by the high balance on your card.

What Your Credit Score Shows

Despite the concerns outlined above, there is good news for those interested in taking e-wallets for a spin. If the user sticks to their budget, and their data isn’t compromised and used for fraud, using the wallet won’t directly influence their credit score.

Credit bureaus can’t tell when you’re using a mobile wallet to make your purchases, just like they can’t tell whether someone is swiping your credit card or punching in its number, said the experts we spoke with. The same goes for credit scoring models that calculate your credit score.

“The credit report only includes information about your balances, debt and payment history. How you pay for purchases doesn’t change that,” said Detweiller. What’s more, “when a credit card balance appears on a credit report, it doesn’t indicate whether those charges were made online or in store or by mobile wallet,” noted Barry Paperno, Credit.com’s credit scoring expert. “Credit reports don’t reflect the manner in which transactions are made, i.e. online vs. in store vs. wallet, and the credit scoring formulas only access what’s on a credit report.”

With this in mind, the only thing you have to lose is … well, everything and nothing. Until the technology’s widely adopted, fortunately the choice will be yours.

Image: Vernon Chan, via Flickr

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Credit.com receives compensation for the financial products and services advertised on this site if our users apply for and sign up for any of them.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team