Here's a great article you'll want to read if you
suspect that your credit score is not as high as it
should be. The lower the score, the more expensive
everything is for you: mortgage rates, equity lines,
credit card interest rates, etc. Great job by one of
my favorite personal finance writers, Liz Pulliam
Weston!

Weird stuff that hurts your credit
Cards that don't report credit limits are just one of
the hidden threats to your credit score. Here are some
of the potential hits you might be taking, and how you
can fight back.
Liz Pulliam Weston

Accountant John Johnson of Springdale, Ark.,
painstakingly rebuilt his credit after some business
reversals several years ago. But the credit-card issuer
that initially helped him is now standing in his way.
Capital One <http://www.capitalone.com/> refuses to
report its customers' credit limits to the three major
credit bureaus. Instead, the bureaus use the highest
balance a customer has charged as a proxy for the
limit.
As a result, the customers' all-important "debt
utilization ratios" -- the portion of their available
credit these borrowers are actually using -- can appear
artificially high. That can depress borrowers' credit
scores, the three-digit numbers lenders use to help
determine creditworthiness.
Lower credit scores can mean higher interest rates on
mortgages, car loans and other borrowing, as well as
potentially higher insurance premiums, since many
insurers also use credit-scoring systems to help gauge
risk.
Hidden threats
Making on-time payments to Capital One cards over the
years has helped Johnson rebuild his credit scores, but
he says its policy on credit limits is hurting him now.
Capital One's practice makes Johnson appear to be using
more than 60% of his credit limit, when in fact he's
using less than 40%. He tried disputing the issue with
the credit bureaus, to no avail.
"I got pretty hostile after awhile," Johnson admits. "I
just don't understand why they (Capital One) would do
that."
Cards that don't report credit limits are just one of
the hidden threats to your credit. Here's what you need
to know about some of the potential hits you might be
taking, and how you can fight back:
Missing limits
Two basic types of issuers tend not to report limits:
Companies that offer cards with no preset spending
limit, like American Express
<https://www124.americanexpress.com/cards/cda/dynamic.j
sp?name=CCSGMultiCardLandingPage&type=intBenefitDetail>
, and companies, including Capital One, that have a
corporate policy to keep the information secret. Not
reporting the limits can prevent competitors from
spotting a company's more creditworthy customers, since
those tend to be the ones with higher limits. (A South
Carolina consumer, by the way, has filed lawsuits
against the three credit bureaus alleging this practice
violates federal fair credit reporting laws.)
As a proxy for the credit limit, card issuers may
report the highest recent balance, the highest balance
ever or some other number of its choosing. You're most
likely to be hurt by a missing or inaccurate credit
limit if you haven't had credit for very long, you have
a troubled credit history or the cards with missing
limits are the only ones you have

You can check which number your lenders are using by
viewing copies of your credit reports. By federal law,
you can get one copy free annually from each bureau;
the site to use is www.annualcreditreport.com
<http://www.annualcreditreport.com/> .
If your limits aren't being reported accurately, you
have a few options:
* Fight. Ask your issuer to report your correct
limit, or to at least use a more favorable number.
You're not likely to get Capital One to change its
policy, but another lender may be willing to substitute
your actual limit or your highest balance charged for
the lower number it's been reporting.
* Reset. If your lender reports the highest
balance charged, you can reset the number reported to
the bureaus by running up a big balance one month. Just
make sure you can pay this hefty number off in full
when the bill comes to avoid unnecessary finance
charges. And don't do this when you're in the market
for a loan, since you could sustain some short-term
damage to your credit scores.
* Switch. Use cards that properly report your
limits to the credit bureaus.
Switching scorecards
The FICO scoring system groups people with similar
histories together when rating them. These groups are
called "scorecards." If you have a bankruptcy on your
report, for example, you'll be grouped on a scorecard
with other bankrupts. Your credit habits may look
pretty good compared with theirs, but if the bankruptcy
were to disappear from your record you'd be lumped in
with people who have stronger histories. Your credit
behavior might not look so good compared with this new
group.
That's apparently what happened to Carmen Georgescu,
who had $51,000 of credit-card debt and a 710 FICO
score. After paying off $17,000 of debt in a few
months, her score rose to 726. A few weeks later,
though, her score suddenly plunged to 686.
Such abrupt drops can often be traced to a negative
item, like a delinquency or a bankruptcy, disappearing
from a borrower's credit report. In this case, though,
the change was even more subtle. Let's let a Fair Isaac
expert explain it:
"Carmen had opened a new account last year which, at
that time, put her in a different scoring group
consisting of consumers who had newly opened accounts
on their credit files," explained Barry Paperno,
manager of customer service for Fair Isaac. "Then when
this recently opened account had aged enough to take
her out of this scoring group and put her into one with
consumers who had not opened any accounts recently, her
score dropped."
Carmen's still-heavy debt load hurt her worse with this
new group than it had with her previous scorecard group

There's not much you can do about this weird quirk in
the scoring formula, other than brace for the potential
effect. The good news: If Carmen keeps paying down her
debt, she should see a pretty quick resuscitation of
her score, Paperno said, "as long as she holds off on
opening anything new for awhile."
Balance transfers
Lower interest rates are generally better when you're
trying to pay off debt, but taking advantage of a
balance-transfer offer can wallop your credit scores in
a number of ways.
Just opening a new credit card to take advantage of the
offer can ding your scores by 5 points or so. If you're
transferring your balance to a card with a lower limit,
that also can hurt your scores, as can consolidating
debt. The FICO formula typically would rather see
$1,000 balances on five cards than a $5,000 balance on
one card.
You can compound the damage by closing the old card,
since shutting down the account trims the amount of
available credit that's used in the credit-scoring
formula.
Typically, lenders won't tell you the credit limit on a
new card until after you've applied and agreed to
transfer the balance. If you're planning to take
advantage of a balance transfer offer, read all the
fine print and consider the following:
* Limit the number of new accounts you open. If
you want to improve your credit scores, don't keep
bouncing your balances from card to card.
* Pay down your debt. Use the lower rate as an
opportunity to reduce your debt load. Paying off debt
is good for your wallet and good for your credit
scores.
Settling debts
In the latest versions of the FICO formula, score
creator Fair Isaac Corp.
<http://www.fairisaac.com/fairisaac> fixed a glitch
that often penalized folks for paying old debts that
had been charged off and sent to collection agencies.
(See "When paying old bills can hurt your credit
<http://articles.moneycentral.msn.com/Banking/YourCredi
tRating/WhenPayingBillsCanHurtYourCredit.aspx> .")
But you can still do substantial damage to your scores
if you settle a current debt for less than you owe. If
an account hasn't been charged off and you're dealing
with the original creditor, Fair Isaac officials say, a
settlement can be worse than leaving the account open
and unpaid. Of course, leaving an account unpaid will
eventually result in a charge-off and a referral to a
collection agency, which isn't good for your scores,
either.

There's no easy solution if you haven't got the money
to pay your bills. Filing bankruptcy is an option,
although it's likely to have a far more devastating
effect on your credit than a settled account or two.
You also might investigate a debt repayment plan
through a legitimate credit-counseling agency (read
"The consumers' guide to credit counseling
<http://articles.moneycentral.msn.com/Banking/YourCredi
tRating/TheConsumersGuideToCreditCounseling.aspx> "
first).
Traffic tickets and library fines
I wrote about this issue in "New threats to your credit
score
<http://moneycentral.msn.com/content/Banking/Yourcredit
rating/P121551.asp> ," and the trend has gained
momentum since then. Local governments are determined
to recoup some of the $40 billion in unpaid debts
consumers owe, including unpaid library fines, parking
tickets and traffic penalties. So these governments
increasingly turn to private collection agencies, which
typically report the unpaid amounts to the credit
bureaus as part of their efforts to pressure consumers
into paying the fines. The collectors may add late fees
or other charges that increase the balance.
The bottom line:
* Pay your fines promptly. Don't wait for
follow-up notices, since they can easily go astray.
Many libraries allow you to review your library record,
including unpaid fines, online, while municipalities
typically have a Web site or a phone number allowing
you to check for traffic or parking fines.
* Don't let a dispute fall through the cracks. If
you're disputing a traffic or parking ticket, note the
applicable deadlines on your calendar and make sure the
issue has been resolved.
* Don't move away from a problem. If you plan to
move and believe you may have unpaid fines, contact the
relevant municipality or library and make sure you've
squared your account with them. Don't expect a
government agency to spend much energy tracking you
down; it's much easier to turn a delinquent account
over to a collection agency, and once that's happened,
your credit is at risk.

Andrew Lockwood, J.D.
Mortgage Expert

Blackacre Mortgage
Tel: 954-389-7011
Fax: 954-337-0916

www.FloridaLoanAdvice.com

Licensed Mortgage Brokerage