Calling All Credit Card Holders!

Creditors have been calling all their cardholders to inform them that their credit cards are either being closed or their credit limits are being lowered. This has broad reaching implications on your 'available credit' and thus your FICO score.

Why Worry?
The fact is, your almighty FICO credit score is comprised of many factors, not the least of which is how 'fat' your balance is against your available credit limit. So in the case of having your limit lowered, usually to your existing balance (i.e., what is owed now) means the system sees that card as maxed out. If you previously had 50% or more available and unused, the system saw you as managing your credit within reason. 30% or less is the ideal limit for optimal credit scoring. 100% of your balance being used indicates higher risk therefore your FICO Score will be lowered. Since the system analyzes your behavior every month for such things as late payments or limits being reached, the effect of losing your available credit will be four fold:

1. You now have a maxed out balance and
2. You have no available credit on that card.
3. Your FICO score will go lower and affect your ability to get a mortgage or other credit.
4. Because of these 3 factors, your interest rates will be raised on your cards. Hardly fair!
The situation is compounded when every bank does this with every card you hold so suddenly your available credit plummets and so does your credit score. The only small consolation here is that everyone you know is probably having the same experience, so eventually the entire credit system will lower it's settings to the new risk factors. (Credit scores are averaged against other credit users.)

What Can You Do About It?
Well, you can try calling back and pleading your case to restore your balances and re-open your cards if they were closed. The chances of your success are limited if you often miss payments or have a habit of going over your limit. I know of one client who called their bank to request reinstatement and he succeeded. Needless to say this person had a long and perfect record with the company. He was polite and convincing. Others have found less success. The fact is, many folks are relying on their available credit as a backstop these days. You may be hanging out until your customer pays you or your unemployment kicks in. Please remember you are not alone.

Speak Up, Out and Often!
I would urge citizens write their congress persons and speak or write about this particular change is affecting you personally. The more your representatives hear from their constituents, the more likely they can have an effect on the behavior of our Federal Trade Commission. After all, the Consumer Protection Act is supposed to protect you, and advocate for consumers, not creditors.

Once the Credit Bureaus get wind of changes in your credit patterns, whether caused by you or your credit card companies, they crunch the numbers of any new 'risk' which my very likely lower your FICO score. High debt to credit balances are top risk factors right up there with late payments. This is not something you can dispute, unlike an inaccurate charge or other record.

Housing Rescue Plan to the Rescue?
I am hopeful that as part of the 2009 Housing Rescue, the powers that be will revisit the arcane and increasingly irrelevant FICO Scoring system to help get more folks into home-ownership.
Happy Recovery
Loannetter

© copyright 2009 susan templeton loannetter

Popular posts from this blog

Are You A Credit Fiasco Waiting to Happen?

How TRUSTING Are You? How well do you know the people who might have temporary access to your filing cabinet, check book or wallet? Now think: there's the guy who installed new cable outlets...your cleaning lady... the neighbor who feeds your cat when your away. Like most of us, you are probably pretty trusting until the precise moment you are either robbed or betrayed. Believe me, I've been there. Once the damage is done it is very costly and time consuming to have it undone. The only way to protect yourself from identity theft is to keep your personal details behind a solid unrelenting wall of common sense. Don't carry your social security card in your wallet and DO have a locked filing cabinet or home safe where you store your check books, passport, un-used credit cards, bank statements, W-2's, pay stubs and anything with your social security number or account numbers that could be used to impersonate you. Sad but true--a very high percentage of people who use your
Read more

What's Your FICO Score Really Worth?

In today's market, personal credit scores are being skewed by a decline in average FICO ® scores. Why should you care? Well, if you are intending to get into debt responsibly in the coming year your FICO score is still the number one criteria your lender will use to determine your likelihood of paying them back. It's also one of the chief pricing factors to getting the best interest rate. That said, things are changing at a rapid pace. The newly minted FICO models are supposedly taking less consideration for small things like parking tickets but the really big defaults for big items like mortgages and car loans will weigh even more heavily as a result.  All defaults have less effect on your score as time goes on . With improved history that is! So it stands to reason that if more homeowners take the 'walkaway' option the impact will be figured into the score models for that particular historical period of consumer behavior. Essentially scoring models are averages o
Read more

Credit Recovery after Short Sale or Foreclosure:

Position Yourself to Purchase a Home Within 2 Years After a Foreclosure Using This Strategy: Generally, buyers who have past credit issues due to a financial crisis may be able to buy a home within three years from the incident. This varies by loan type and lender. Most lenders have their own underwriting guidelines on what they will accept and when. 620-640 FICO is the starting point for government insured loans. So for anyone going down this path, consider the recovery time to get your credit back into lending territory and note the recovery steps at the bottom of this post. Put them on your refrigerator! Given the sheer number of people in financial distress right now, consider that loan guidelines may change in the coming years. For more distressed borrower information, visit our other blog: www.equitytalks.blogspot.com How soon can you buy a home again? If you default on your home loan now, the clock starts ticking when the home is transferred to a new lender. NOT unfortuna
Read more