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Apr 14, 2009

Credit Cards, Credit Crisis, and Your Credit Score

Credit card companies are switching tactics due to the credit crunch, and consumers are taking the brunt of the change. Higher interest rates, larger late fees and penalties, along with abrupt, unexpected credit card cancellations for accounts deemed “inactive” are only a few of the ways these companies are seeking to minimize their risks. Unfortunately, even if you’ve been making regular payments, you could get caught up in this sweeping readjustment just the same. Higher fees, when coupled with smaller credit limits can turn even a respectable credit score into one that needs a lot of work.

Amongst the circumstances that could cause you to be flagged for a higher rate, high balances on other cards, along with having an adjustable rate mortgage are two of the most common. So what can you do to protect yourself from an unexpected increase? While there is no guaranteed prevention plan, there are some measures you can take that will help to minimize the chance that your credit card is subjected to these harsh new penalties.

Minimize your balances – if you carry a high balance on one card, that credit card company may consider you to be a risk of default and may lower your limit and increase your rates, even if you’ve been paying on time. This in turn can cause a spillover effect, wherein your other credit card companies follow suit, reducing the limit and upping the rates on cards you barely use. The solution? Carry a smaller balance across all of your cards, rather than a high balance on only one. In this way, you have an active account, but the balance is small, which can be seen as less of a risk.

Pay more than the minimum – if you consistently pay more than your minimum balance, there is a chance that your credit card company will see you as a better risk than those who are only making their minimum payments. If you can afford to pay more each month, do so – not only will it help to keep you out of the ‘high-risk’ category, it will also save you money on interest.

Read your credit card terms – many credit card companies have updated their terms of service to include language that allows them to raise your rates and lower your limits if you are late for even one payment. And late may be defined as 12:01 AM on the due date or the day after. Make certain you know what your terms are, and be prepared to negotiate if you feel you aren’t being treated fairly. If you’ve been a steady, good-paying customer for years, some credit card companies may be willing to negotiate better terms. If not, then you may have to adjust your spending accordingly.

Credit card companies have always been business first, and the consumer now, as always, must be prepared to take proactive steps to build and maintain positive credit, regardless of what the credit card companies decide to do.

Posted in credit, credit card companies, credit cards, credit crunch, late fees | No Comments »



Apr 6, 2009

No More MyFICO? Experian’s Decision to Eliminate Consumer Access to Its FICO Scores

Consumers checking their credit scores no longer have access to Experian’s FICO score directly – the company did not renew its contract with MyFICO.com, and has no plans to offer consumers access to their FICO score directly in the future. Instead, Experian offers a different score model to consumers which is supposed to help simplify the scoring process for consumers. Unfortunately, the new scoring system does not use the same calculations or scale as the FICO score, which can lead to confusion among consumers who want to compare their FICO score amongst Experian, Equifax, and TransUnion. Considering the current credit market, and the fact that just a few points on your FICO score can make the difference between an affordable interest rate and payments that you just can’t make, this is a serious disadvantage – not only for people who are trying to improve their credit scores, but for those who may be shopping around for an auto loan or mortgage.

Unless Experian changes its mind in the future, the only way to get a glimpse of your current Experian scores now is if your lender makes those scores available to you during the lending process. Fortunately, you can still check your FICO scores for Equifax and TransUnion, which will give you a fair idea of the range you can expect when it comes to your Experian score as well. If you are concerned about not having access to your Experian credit score, there are a few steps you can take that will ensure that your score is the highest it can be, even if you don’t have access to your credit score directly.

Credit Report Cleanup

To start, you should get a copy of your credit report from all three bureaus and check for discrepancies – make sure that the information listed on each report is accurate, up-to-date and consistent from one report to the next. In this way, you can be certain that all three credit scores are drawing from the same information. Make certain that if you dispute an item on your credit report, either through a credit repair service or on your own, you dispute that same item at each credit reporting agency – erroneous information left on one credit report can drag down your score.

Third Party Reports

If you’re planning on making a major purchase and you are in the pre-approval process, you may be able to get some lenders to part with your credit scores, not only from TransUnion and Equifax, but from Experian as well. Because Experian is selling their proprietary scores directly to businesses, this may be the only way for you to get a clear snapshot of your score for your reference. Don’t apply for an auto loan, credit card or line of credit just to see your Experian scores, however – multiple inquiries on your credit report can sometimes lower your score, defeating the purpose of your hard work.

Overall, your best approach to maintaining a good credit score is the same that it’s always been. Timely payments to creditors over the long-term will improve your credit score, even if you don’t have direct access to it. Take the time to improve your credit naturally, use credit-repair services wisely, and regardless of your access to your Experian FICO score, you can still qualify for that loan you deserve.

Posted in Equifax, Experian, FICO, MyFICO, TransUnion, credit, credit scores | No Comments »