Your Credit Card Company Is Playing Evil Tricks On You
By Stephen Snyder
I couldn't believe what I was seeing.
I recently reviewed my wife's FICO scores and I nearly fell out of my chair...they suggested she was carrying balances on her cards that were too high.
What?!
It couldn't be...she never carries a balance on her cards. I knew something was wrong, so I reviewed her reports to see what her card balances were.
There it was...two of her card lenders were reporting her "highest balances" as her limits. Highest balance is defined as: the highest balance you've ever had on that specific card.
The difference between "highest balance" and "credit limit"You may be thinking, "What's the big deal? You're overreacting."
I'm not. You see, when lenders do not report your actual limits to the reporting agencies it can wreak havoc on your FICO scores.
For instance, let's say the issuer is Capital One® (Crap One, as I like to call them). They should report your account as follows:
Credit limit (your real limit):
$5,000
Current balance owed:
$1,000
You're using 20% of your available on this card. Ideally, it should be lower, but this is certainly not bad.
However, let's say that Capital One reports your highest balance as your limit. Assuming $1,000 is your highest balance ever, they may report the account like this:
Credit limit:
$1,000
Balance owed:
$1,000
Now it looks like you're using 100% of your available credit—which is not true. It's evil, because it will drastically lower your FICO scores. It's as if your son earned five A's and one C in his science class at school—but his final grade is a C because the teacher's policy is to use his lowest grade as the final grade.
Some lenders don't report limits at allSome lenders refuse to report your limits.
Why's this bad? Because when there's nothing in the limit field on your reports, that account isn't helping your FICO scores as much as it could. If your cards aren't helping you increase your scores, they're useless to your recovery from bankruptcy.
Remember, how much you owe (your balances) versus how much you're approved for (your limits) makes up a large part of your FICO scores (see Life After Bankruptcy Issue #16). So if you have high limits and low usage, that's a good thing. It will help raise your scores.
How can card issuers get away with these dirty deeds?Some lenders do this out of ignorance (unfortunately, they're in the minority). Most do it to gain a competitive advantage. card issuers know that when they don't report your limit accurately it can screw up your scores. In fact, about 5 years ago a disturbing trend started taking place with the top 50 card issuers.
Two of the largest issuers stopped reporting limits to all three reporting agencies. Soon after, other large card issuers jumped on the bandwagon and withheld their customers' limits. After about six months it was more common to see a missing or manipulated limit than it was to see an accurate one.
It got so bad that Fair Isaac Corporation performed a quick analysis and determined that the practice of not reporting accurate limits hurts some consumers' FICO scores. Why in the world would card companies refuse to report real limits when they know it will hurt their customers' FICO scores?
In two words...monetary gain.
In 123 words...
The card issuers thought they were losing customers to their competitors. Here's an example...
Let's say I have a National City Bank® card with a $2,500 limit reporting on my reports. When a limit is reported on reports, all the other card companies can see it. If Capital One saw that my limit with National City Bank was $2,500, they could then offer me a $3,000 or $5,000 limit to entice me to switch cards.
Credit card issuers were stealing business from each other by making their limit offers a little better than what you already had. This is called "poaching." And the easiest way to prevent poaching was to not report their customers' limits.
Who cares if it hurts your FICO scores? The card companies sure didn't.
But I care. And I know that some card issuers still don't report any limit information at all. Capital One is the most notorious offender. (Surprised?) Others just report your highest balance as the limit.
So how can you determine if your FICO scores are being damaged?1. Review your reports.
2. Look to see if your limits on your cards are being reported properly. If you're not sure, look at the last statements you received from each of your card issuers and write down what the limits should be.
3. If they're not listed on your statements, call the card issuers and ask them what your limits are. Then compare them to the limits showing on your reports. You may ask yourself, "How do I do that?"
If you find one of your lenders incorrectly reporting your limits, or not reporting anything, here's what to do:
1. Telephone the card companies and alert them of the problem and how it affects you. Ask them to start reporting the accurate limits. Remember, it takes 30 to 60 days for any change to post to your
credit reports. So the sooner you take action the sooner you'll see results.
2. On the same day you telephone them, follow up with a written letter (via registered mail) to the person you spoke with on the telephone summarizing the problem in writing and outlining the plan of action they gave you over the phone. Be sure to date the letter and keep a copy.
3. If after 45 days you don't get a response...your next line of defense is to hire an attorney to represent you. Hopefully it won't come to this...but a threatening letter from an attorney can work wonders.
4. If the lender refuses to adjust their policy for you, then you have a decision to make. Will you take them to court? Or will you transfer your balance to a more reputable lender? I'm not a big proponent of transferring balances, but this would be a situation where you may have no other choice.
Here's my take on things...The Fair Reporting Act says that any accounts that are inaccurate, incomplete, misleading, unverifiable, or outdated have to be deleted or corrected—or it's a violation of federal law.
I would argue that an account with an inaccurately reported limit is not only inaccurate, but is also grossly misleading—especially to FICO scoring models. This is especially important for people recovering from bankruptcy—it's hard work to increase our scores and we need every FICO score point that we earn.
In summary: Make sure you know the reporting policies of all your current lenders, and any lenders you're thinking of applying with. You should use only lenders that are willing to give full for your good habits.
Article Source: http://www.articles-galore.com
Stephen Snyder is the founder of the After Bankruptcy Foundation a non-profit organization that helps people recover after bankruptcy. He has helped thousands of people obtain a credit card after bankruptcy with a fair interest rate.
Products and Services mentioned in this article are available Here
