Your FICO Score May be Being Sabotaged……..Is it?
August 3rd, 2007 categories: Buying San Diego Real Estate, Local San Diego News You Can Use
Your FICO Score may be being sabotaged by your credit card company and your loan borrowing costs can be adversely affected by your reported credit card limit or lack of reported credit card limit.
If your credit card company does not report your credit card limit, it can definitely cause your FICO score to be lowered. Your FICO score in turn determines your loan borrowing costs.
You FICO score can be affected by as much as 80 points by your credit card company failing to report your credit limit.
Assume you can get an increase of of just 41 points on a lets say 659 FICO score and it can save you approximately $219 in monthly payments on a $300,000, 30 year fixed loan.
This example in detail would look like this: If you have a FICO score of 659 points and want a $300,000 loan, you would qualify for a 30 year fixed rate of approximately 7.68%. With that same loan at a 700 point ( 41 points higher ) FICO score, your 30 year fixed rate on a $300,000 loam amount would be 6.59%. That would net you a savings of $219.00 per month.
Fair Isaccs assigns a heavy weight of 30% of your entire score to utilization of available credit. See my post from July 2nd, 2007 Out with the Old FICO Score and In With The New. If for example you have a $5000 credit limit and you are carrying a $4500 balance, you have a 90% Utilization Rate. The FICO scoring system deducts points for high ratios.
If on the other hand, you owe $500, then your utilization rate of 10% and FICO rewards extra points for that. They rate that much higher for your moderate and responsible use of credit.
When a creditor ( credit card company) fails to report your limit, FICO can not compute the ratio. If the system doesnt ignore that credit line, then it automatically computes the highest balance as the credit limit and gives shows a 100% utilization and the FICO score is lowered.
Example: On a credit card where the creditor fails to report the credit limit and lets say you owe $1250. You would be utilizing 100% of your limit and points off your score would be deducted. You would look like a higher risk borrower and your credit score would drop significantly.
In deference to this revelation, Credit cards companies say they hide they hide their best customers from the prying eyes of competitors and will likely change their business practices as millions of its customers have been affected.
Note to Consumers: This post is about a practice and not about a specific company. If you have concerns, check out your individual credit reports to be sure that your credit card companies are properly reporting your credit card limit.
