Consumer Law

Credit Card Companies May Damage Your FICO Score By Lowering Credit Limits

By M. Stan Herring

The USA Today recently ran a story on how banks are cutting credit card limits which has the effect of increasing the percentage of credit used as compared to the total available credit and this lowers the FICO score. Here is an example from the article:

Let's say a cardholder has a credit limit of $10,000 and a balance on the card of $4,000. The card company worries that large balance may increase the prospects for default, so it lowers the credit line to $5,000.

But in doing that, it completely changes what is known as the credit utilization rate, raising it from 40% to 80%. That is then factored into the calculation of one's so-called FICO credit score, which measures creditworthiness, according to Craig Watts, a spokesman for FICO-creator Fair Isaac Corp.

It appears there is nothing illegal about this but you do need to be aware of this possibility and do your best to lower or eliminate credit card debt to protect your FICO score. Of course, one thing that will damage your FICO score is false information on your credit reports. The solution is to pull your credit reports, review them, then dispute any false information, and finally sue if the false information is not corrected. Please feel free to contact us if you live in Alabama and have questions about your credit reports.

Full post as published by Alabama Consumer Blog on July 13, 2008 (boomark / email).