People already know that bankruptcies, foreclosures, repossessions, and collections will hurt credit. And it’s no big secret that late payments are one of the causes of bad credit.
But I bet you don’t know about some of the things that hurt credit! Today’s blog is about the first of three dirty little secrets that will hurt your credit card score.
HURT CREDIT SECRET #1: Credit card companies often omit or inaccurately report credit card limits, and this causes your score to drop. About half of all consumers are missing at least one credit limit on their credit reports. And in other instances, credit card companies intentionally report a lower limit than you have.
Why does this hurt credit?
The credit-scoring systems place a lot of weight on something called a utilization rate. The utilization rate represents your balance as a percentage of your limit. If your limit is $1000 and your balance is $300, you have a 30 percent utilization rate. If your balance increases to $500, your utilization rate would increase to 50 percent. In other words, you would be utilizing 50 percent of your available limit.
The credit-scoring formula responds more favorably to people who have a utilization rate that is no higher than 30 percent.
Now let’s imagine that you have a $300 balance on a credit card with a limit of $1000. Your utilization rate is 30 percent. Good news for your credit score, right?
Not so fast. If the credit card company is only reporting a $500 limit, you will appear to be carrying a 60 percent utilization rate. And this hurts your credit score.
There are a lot of theories as to why the credit card companies do this. One is that credit card companies buy lists of borrowers whose limits are, for example, more than $10,000. The companies then send credit card offers with enticing interest rates to the people on these lists. Their goal is to encourage borrowers to switch cards.
Your credit card company does not want your name on that list. They want to make sure that you remain a loyal customer. In an effort to keep you as a client, some experts say credit card companies report a lower credit limit than you actually have, or they do not report your limit at all.
This makes you less appealing to other credit card companies.
This might be good news for their client list, but it causes hurt credit.
Are you a victim of this scam? If so, take the following steps:
1. Pull your credit report from www.720ficoscore.com.
2. If the credit card companies are inaccurately reporting any credit limit of yours, immediately begin the process of correcting this mistake.
Or, simply get all the forms and worksheets necessary to correct this mistake, and others. And be sure to join us next week for the second insider secret about hurt credit.
A “credit card score” is a letter grade that reflects whether your credit card habits are helping you build credit or causing you to have bad credit: An “A” credit card score is excellent; an “F” indicates that you likely have bad credit. The lower your credit card score, the more likely you have bad credit and need to make immediate changes to your credit card behavior.