The Credit Card Companies Sure Didn' T

I couldn' t believe what I was seeing.

What? I recently reviewed my wife's FICO scores and I nearly fell out of my chair. they suggested she was carrying balances on her credit cards that were too high. It couldn' t be. she never carries a balance on her credit cards. There it was. two of her credit card lenders were reporting her" highest balances" as her credit limits. I knew something was wrong, so I reviewed her credit reports to see what her credit card balances were. Highest balance is defined as: the highest balance you' ve ever had on that specific credit card. You' re overreacting. " I' m not.

The difference between" highest balance" and" credit limit" You may be thinking, "What's the big deal? You see, when lenders do not report your actual credit limits to the credit reporting agencies it can wreak havoc on your FICO credit scores. They should report your account as follows: Credit limit( your real limit) : $5, 000. For instance, let's say the issuer is Capital One� (Crap One, as I like to call them) . Current balance owed: $1, 000. Ideally, it should be lower, but this is certainly not bad. You' re using 20% of your available credit on this credit card.

However, let's say that Capital One reports your highest balance as your credit limit. Balance owed: $1, 000. Assuming$ 1, 000 is your highest balance ever, they may report the account like this: Credit limit: $1, 000. Now it looks like you' re using 100% of your available credit- which is not true. 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. It's evil, because it will drastically lower your FICO credit scores.

Some lenders don' t report credit limits at all. Why's this bad? Some lenders refuse to report your credit limits. Because when there's nothing in the credit limit field on your credit reports, that account isn' t helping your FICO scores as much as it could. Remember, how much you owe( your balances) versus how much you' re approved for( your credit limits) makes up a large part of your FICO credit scores( see Life After Bankruptcy Issue# 16) . If your credit cards aren' t helping you increase your credit scores, they' re useless to your recovery from bankruptcy.

So if you have high credit limits and low credit usage, that's a good thing. How can credit card issuers get away with these dirty deeds? It will help raise your scores. Some lenders do this out of ignorance( unfortunately, they' re in the minority) . Credit card issuers know that when they don' t report your credit limit accurately it can screw up your credit scores. Most do it to gain a competitive advantage.

In fact, about 5 years ago a disturbing trend started taking place with the top 50 credit card issuers. Soon after, other large credit card issuers jumped on the bandwagon and withheld their customers' credit limits. Two of the largest issuers stopped reporting credit limits to all three credit reporting agencies. After about six months it was more common to see a missing or manipulated credit limit than it was to see an accurate one. Why in the world would credit card companies refuse to report real credit limits when they know it will hurt their customers' FICO scores? It got so bad that Fair Isaac Corporation performed a quick analysis and determined that the practice of not reporting accurate credit limits hurts some consumers' FICO scores. In two words. monetary gain.

The credit card issuers thought they were losing customers to their competitors. In 123 words. Here's an example. When a limit is reported on credit reports, all the other credit card companies can see it. Let's say I have a National City Bank� credit card with a$ 2, 500 credit limit reporting on my credit reports. 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.

This is called" poaching. " And the easiest way to prevent poaching was to not report their customers' credit limits. Credit card issuers were stealing business from each other by making their credit limit offers a little better than what you already had. Who cares if it hurts your FICO scores? But I care. The credit card companies sure didn' t. And I know that some credit card issuers still don' t report any credit limit information at all.

So how can you determine if your FICO scores are being damaged? Capital One is the most notorious offender. (Surprised? ) Others just report your highest credit balance as the credit limit. Review your credit reports. If you' re not sure, look at the last statements you received from each of your credit card issuers and write down what the limits should be. Look to see if your credit limits on your credit cards are being reported properly. If they' re not listed on your statements, call the credit card issuers and ask them what your credit limits are. You may ask yourself, "How do I do that? " If you find one of your lenders incorrectly reporting your credit limits, or not reporting anything, here's what to do: Telephone the credit card companies and alert them of the problem and how it affects you.

Then compare them to the limits showing on your credit reports. Ask them to start reporting the accurate credit limits. So the sooner you take action the sooner you' ll see results. Remember, it takes 30 to 60 days for any change to post to your credit reports. 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. If after 45 days you don' t get a response. your next line of defense is to hire an attorney to represent you. Be sure to date the letter and keep a copy.

Hopefully it won' t come to this. but a threatening letter from an attorney can work wonders. Will you take them to court? If the lender refuses to adjust their policy for you, then you have a decision to make. Or will you transfer your balance to a more reputable lender? Here's my take on things. I' m not a big proponent of transferring balances, but this would be a situation where you may have no other choice. The Fair Credit Reporting Act says that any accounts that are inaccurate, misleading, incomplete, unverifiable, or outdated have to be deleted or corrected- or it's a violation of federal law.

This is especially important for people recovering from bankruptcy- it's hard work to increase our credit scores and we need every FICO score point that we earn. I would argue that an account with an inaccurately reported credit limit is not only inaccurate, but is also grossly misleading- especially to FICO credit scoring models. 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 credit for your good credit habits.