Credit Card Blog

The FICO credit scores are calculated using information about what kind of credit you have, how much of your available credit you use, and how you pay the debt you have.  Oddly enough, it doesn’t care much about your income or where you work - just what you do with the money you borrow and how much of your available funds you p

Most people hurt their credit scores by utilizing too much of their available funds.  For example, if all of your credit cards combined have an available spending limit of $8,000 and you usually have about $6,500 in credit card debt each month, you’re using a large percentage of your available money and therefore your credit score is negatively affected by that.

One way to start raising your credit score using your existing credit cards, is to ask your credit card companies to raise your credit limit (without checking your credit report).  If you’ve been making your payments on time, chances are the credit card company will do this for you.  As you increase the amount of money you have available, and continue to pay down the amount of money you owe, you’ll see your credit score go up.  Just be sure not to start charging more because you have more room on your card(s) to charge!

The credit crisis has resulted in more conservative lending practices. These days, it’s more difficult to qualify for loans that would have been easily available two years ago. That’s because lenders aren’t willing to take the financial risks they once took.

This trend has also caused many banks and card companies to lower their customers’ credit card limits. The unfortunate trickle-down effect is lower credit scores for card holders.

Credit scores are affected by a person’s debt ratio, which is the amount of debt they carry compared to their available credit. When credit limits go down, debt ratio goes up - and credit scores suffer as a result. Card holders might cease to qualify for loans, or they might be required to pay higher interest rates.

Always stay updated on your card’s terms and conditions, and watch carefully for changes to your credit limit. A credit monitoring program is also a good way to be alerted to sudden changes in your credit score. Equifax is one company that offers low-cost credit monitoring services. A web search for “credit monitoring” will turn up plenty of options as well. A little research and a little vigilance will prevent any unpleasant surprises on your credit report.

The FTC is suing CompuCredit, a company that provides credit cards targeted to individuals with lower credit scores and poor credit histories.  The system CompuCredit uses to determine eligibility for credit is being questioned.  While the company seems to take into consideration most of the normal factors for obtaining credit- like how long you’ve had credit, whether or not you’ve exceeded credit limits and whether you make your payments on time- they also have some strange factors to determine eligibility.

CompuCredit also factors what people buy with their credit cards to determine whether or not to extend credit to people.  Customers who use their credit cards to pay for marriage counselors are denied credit; as are individuals who pay for massage parlors,  billiard halls, or their bar tabs on credit.

It seems credit companies can do whatever they want.  At least the FTC is taking action with a lawsuit against this company for it’s strange approval processes, but I can’t help but wonder how much of this type of “stuff” is factored into our actual credit scores?  If it’s possible for a credit card company to use this information to deny or approve credit, it is probably just as possible for a credit report agency to use such information in the calculation of our credit score or history?

The thought of sky-high credit limits often provokes a strong response in people. Some fear these limits and their potential. Others long for them. So when is a really high credit limit actually a good thing?

High credit limits can make or break a credit score. The effect depends on how those credit limits are used. For example, a card holder who has an untapped combined credit limit of $100,000 will look great to lenders. They will assume that the person has been financially responsible to have earned so much credit, and even more responsible to have left most or all of it unused. This will open many doors for the card holder.

Now, if that same card holder suddenly racked up a debt of $50,000, lenders would start turning up their noses at such a potential risk.

A person’s utilization rate is the key to their success. A high credit limit with little or no debt is the ideal situation. Some consumers find that their utilization rate is much more important than their stellar payment history when it comes to hiking up a credit score.

The bottom line? If you’re been declined for credit, pay down your debt. Ask for credit limit increases on your available credit cards, or open new ones that offer more favorable terms. With great power comes great responsibility, though; when your limits skyrocket, it will be tempting to take that dream vacation you’ve been putting off. Just keep your cool and keep your eye on the prize: an excellent credit score.

If you were offered a credit card with a $100 credit limit, but knew that you would have to pay a $100 activation fee in addition to monthly payments and high interest rates, you’d likely turn up your nose and take your business elsewhere.

Sadly, millions of sub-prime card holders are agreeing to these atrocious terms. They fear that their lack of credit, or bad credit, will prevent them from obtaining a more traditional credit card. College students are prime targets for fee-harvesting card marketing. Their biggest mistake is failing to read the terms and conditions of the credit card before signing a contract. Some of these cards offer credit limits as low as fifty dollars. If students and other potential card holders were to read the terms carefully, they’d do the smart thing and walk away.

It’s true that poor or no credit will have an impact on your interest rate when you sign up for a credit card. But even people with the lowest credit scores can do better than a fee-harvester. If you’re in need of a credit card while you build or repair your credit, talk to your bank. If you’ve done business with them for a while, they will likely work with you and extend you credit. There are plenty of ways to get a credit card if you have bad credit. Do your homework, and don’t fall for cards that sound too easy to be true. Chances are, they’re not a very good deal.

You’ve worked hard and finally paid off the balance on one of your credit cards. Now, you should go ahead and pay off the balance and cancel the card, right?

Wrong!

You should think twice before canceling a paid off credit card. Closing a credit card account will negatively impact your credit score, especially if you’ve held the credit card for a long time.

Also, if you are about to apply for a loan or mortgage, a recent credit card cancellation could actually hurt your chances of qualifying.

There are two main ways that cancelling a credit card can hurt your credit score:

Number One – Cancelling a Credit Card Can Raise Your Ratio of Credit Card Utilization

Credit bureaus compare the amount of credit that you are using to your total available credit limits. In fact, credit card utilization accounts for up to 30% of your credit score. The lower your credit card utilization figure is, the better it is for your overall credit score. It’s best to keep your credit utilization ratio below 20%. If you cancel a credit card, then you are increasing the percentage of available credit that you are using because the credit limit for that card is cancelled too.

For example: Imagine that you have three credit cards with a $2,000 limit on each of them. On card number 1, you have a $600 balance. On card number 2, you have a $500 balance. On card number 3, you have a $50.00 balance. Your credit card utilization ratio is averaged across the three cards, so it would be ($600 + $500 + $50)/$6000 = $1150/$6,000, or a healthy 19% of your available credit.

However, let’s say that you decide to pay off card number 3 and cancel the card. Your credit utilization ration, now averaged across two cards, would now be ($600 + $500)/$4000=$1100/$4000, or about 28% of your available credit. Closing a credit card account caused your credit utilization score to jump quickly from an acceptable range (19%) to an unacceptable range (28%).

Number Two – Cancelling a Credit Card Affects Your Credit History

When it comes to your credit score, older debt is better than new debt. That’s because loan companies want to see that you have a long history of managing debt well. In fact, the length of your credit history accounts for up to 15% of your credit score. If your card history for a particular card shows a consistent pattern of payment over a long time, then usually you are much better off keeping that credit card account open.

What to Do Instead of Cancelling a Credit Card

Let’s say that you finally have a credit card almost paid off. A natural impulse would be to completely pay it off and close the credit card account. As we have shown, however, this may not be the best overall choice for your credit score.

An alternative to closing an account is to leave the credit card account open, but to make no new charges on it. (If you feel that the temptation to make new charges is too great, then you may wish to hide the card away to avoid using it.)

Guest post by Apex Credit Cards.

Part of managing your credit responsibly involves knowing your FICO score. You can order your score anytime from the various credit bureaus, but there is a fee involved. (Everyone is entitled to one free credit report each year from each of the major bureaus; but it doesn’t include your FICO score, which is a large part of how creditors determine whether or not to issue you credit, among other things).

WaMu has been offering their cardholders access to their FICO score, for free, since 2003. If you have a WaMu credit card, you simply set up access to your online account manager, which allows you to make payments and view your credit card history as well as receive monthly updates from TransUnion regarding your FICO score and why it is what it is! Ongoing credit monitoring can be purchased through various companies for monthly fees that can add up to over $100 a year.

Keeping on top of your credit history is important. WaMu offers you a way to do that simply by being a credit card holder.