FICO Scores Affected By Credit Card Changes

During the credit card craze in the last few months, many credit card holders found themselves with lower credit limits for seemingly no reason at all. While many mourned the loss of their lines of credit, many more were angry and unsure about what the changes meant for them. It turns out those changes had a bigger impact than originally thought.

FICO Trouble
One of the major impact cardholders are now learning about is the difficulties calculating a consumer’s FICO score. The FICO score is calculated using a top-secret and complex formula that combines many factors including length of credit, payment history to come up with what is known as a consumer’s credit score. Because one of the factors used in the credit score calculation is the ratio of debt to credit, the new changes have been affecting that calculation. This means that people with lowered credit limits will now have a credit history that reflects much more debt than credit, thus lowering the credit score and possibly causing problems in the future when consumers need to apply for credit, a loan, or a mortgage.

Placing Blame
There are many examples when consumers have approached their credit card issuer to complain about the credit line reduction’s impact on their credit score but those card holders were told the credit card company bore no responsibility and in was in fact a problem for FICO. Since nearly 30 million American credit card holders had their credit limits reduced in the last year, many consumers may soon have a serious issue being approved for new credit.

Credit Score Problems
Along with the many changes in the credit card industry, there are also many changes consumers need to be aware of about their credit score. For instance, what used to be considered an excellent credit score of 700 is now considered to be good credit. For excellent credit and the best interest rates, a 730 is now needed. Lenders are really screening for credit risks and credit is not given out as easily as in the past. This may present a real problem for card holders who had their limits reduced. Many consumers are also concerned that the reduction in their credit card credit line will reflect poorly on them because of the additional decrease in their credit score. The credit report information could erroneously indicate that a consumer is a credit risk when that really is not the case. Consumers who have been affected by credit limit reductions will likely find that new applications for credit will be denied or if approved, the consumer will have to pay more money in interest rates. These problems can occur whether or not the card holder was at fault for the credit limit reduction.

Dealing with a lowered credit limit may not be easy but it is worth a phone call to your credit card issuer to ask for an increase or a reassessment of their credit history. If you have been a loyal customer with a good payment history, you may be able to get your credit limit reinstated. Speak with your credit card company about what you can do to raise your limits. If a company representative is not agreeable, ask to speak with a manager. After a careful review of the consumer’s account history, a reinstatement of the original credit limit may be awarded.

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This entry was posted on Friday, July 24th, 2009 at 9:03 am and is filed under Credit Card Use, Credit Score, Financial Advice. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.