Non-reporting Credit-Card Limits Can Lower Credit Scores.
Ensure lenders are reporting your credit-card limits. A chunk of
your score is based on revolving debt outstanding compared with
the total amount of credit available, or your debt-to-credit-limit
ratio. If your debt nudges up against your credit limit, your score
will fall. But some creditors withhold credit limits to tarnish
customers' credit histories, making them less appealing to competitors.
Credit limits are important factors in computing credit scores.
And credit scores in today's marketplace govern what interest rate
you are charged on a mortgage. In order to measure a person's "utilization"
of credit. scoring systems need to know the credit limit on the
account. Some large, national credit card companies routinely withhold
their customers' account limits, effectively making computation
of standard credit scores impossible on those consumers.
What can individual consumers do about flagrant nonreporting of
limits by card companies that depress their scores and raise interest
charges on home mortgages? Tops on the list: Get copies of your
three bureau reports and check whether your card issuers are reporting
fully. If you find they are not, complain bitterly — especially
if you stake a lot of your personal credit history on your good
behavior with their cards.
Banks Raise Minimum Payments On Credit Card Accounts
Credit card companies are quietly starting to nudge their customers
to pay off more of their debt each month. Led by MBNA Corp. and
Bank of America, they are raising the minimum balance that card
holders must repay from each month's bill.
The new policy, which boosts the amount of an outstanding credit
card balance that must be paid off each month, "was a result
of expected changes across the industry regarding minimum payment
requirements," said the Bank of America official.
With the change, the Charlotte banking giant became the second
major credit card issuer to tighten payment requirements since the
federal Comptroller of the Currency suggested in late 2003 that
consumers would be better served by higher monthly payments.
Consumers Can Save Money
With Good Credit Score
These days it
is easier to get credit, but many people pay more for it because
of their credit scores. Credit scores are an important part of everybody's
credit profile.
Lenders use
the scores to determine whether to offer credit to individual consumers
and how much they will charge in interest: the lower the score,
the bigger the risk, and the higher the interest rate. They like
credit scores because it's quicker to look at a number than to look
at credit reports.
A credit-score
difference of 50 points can have significant consequences. Take,
for example, two people each borrowing $150,000 to buy a house.
At current rates, the one with a good score will pay $876 a month
for a 30-year mortgage (interest rate: 5 3/4 %), according to Fair
Isaac Corp., a Minneapolis company that developed the credit risk
score process. The other, with a lower score, could be burdened
with monthly payments of $1,236 (interest rate: 9 1/4 %) on a loan
for the same amount.
Consumers who
have made poor financial decisions can improve their scores by reforming
their ways and letting time pass.
Debt Isn't Always a Negative Factor for Consumers Who Manage It
Well and Don't Overspend
Experian Consumer Direct(SM) on Jan. 20 announced the results of
a nationwide study on the effects of debt on consumer credit scores.
Some consumers may think that debt will always have an adverse
effect on their credit score. Debt by itself is not a negative factor
as long as it is managed well and consumers are not extending themselves
beyond their means. In fact, the national average credit score for
consumers with debt above the national average is higher than the
average credit score for those with debt below the national average.
The national average Experian PLUS Score(SM) for consumers is 677.
Overall, the study found:
- U.S. consumers' average debt is 12 percent higher compared
to the same time last year.
- U.S. consumers have an average debt of $11,224 compared to
last year's average debt of $10,024.
- 25 percent of U.S. consumers have debt that is above the national
average and their average Experian PLUS Score is 695.
- The average PLUS Score for consumers with debt below the national
average is 671.
"It's important for consumers to remember that having debt
is not always a bad thing as long as they manage it well,"
said Ed Ojdana, president of Experian Consumer Direct. "They
should also assess their finances on a regular basis by checking
their accounts to be sure everything is in order before making future
purchases."
To Improve Your Credit, Discipline Your Credit Card Habits
Taking a few steps in credit card use habits, consumers can improve
their overall credit picture and avoid falling victim to fraud or
identity theft. Do not allow improper use of credit cards to be
a burden to you. Here are some tips on wise use of credit cards:
- Make payments on time: Establishing and maintaining a history
of regular payments helps improve consumer credit scores and can
potentially lower credit card interest rates.
- Evaluate credit offers: Credit card companies regularly solicit
prospective and existing customers with better terms and interest
rates. Responsible users of credit have access to the best financing
opportunities.
- Track monthly spending: Design a reasonable monthly budget and
do your best to stick to it. Track actual expenses as they are
incurred. Notice whether you're spending more than you budgeted
and reduce your spending where you can.
- Review credit reports regularly: It's important to check your
report at least once a year.
- Use credit within your ability to repay: Creditors evaluate
whether consumers have too much credit and whether they might
need to raise credit costs.
Larger Initial Rate Discounts and Increased Popularity of Hybrids
Freddie Mac released on Jan.6 the results of its 21st Annual Adjustable-Rate
Mortgage (ARM) Survey, which found:
- Greater lender discounts for introductory ARM rates;
- Smaller interest-payment savings for ARMs relative to fixed-rate
loans;
- Increasing popularity of hybrid ARMs relative to one-year adjustables.
"The Federal Reserve ratcheted up short-term interest rates
five times over the last half of 2004, raising their Federal Funds
target from 1.0 percent to 2.25 percent," said Frank Nothaft,
Freddie Mac vice president and chief economist. "Long-term
mortgage rates were little affected, averaging about the same at
the end of the year as they did in the beginning. Initial rates
on ARMs, however, rose by about 40 basis points over the course
of the year because they typically are priced off of financial instruments
with shorter maturities that match the length of the initial adjustment
period."
Compared with Freddie Mac's previous Annual ARM survey, the interest
rate savings on ARMs is now smaller, even with the initial rate
discounts that are offered by lenders. For example, the one-year
adjustable carried a rate that was 2.0 percentage points below a
30-year fixed-rate loan in the last survey, but only 1.6 percentage
points lower in the current survey, reflecting the rise in short-term
interest rates over the last several months.
Take a Closer Look at Your Credit Report
With identity theft on the rise, it's a good idea to check your
credit report at least once a year, and certainly in advance of
applying for a mortgage or loan. This will enable you to address
any issues before they wreak havoc on your financial life. Take
a closer look at your credit report to spot any errors or see if
there are any omissions
When you check your credit report, you need to look at reports
from all three bureaus. People tend to pull one and think everything
is the same on all of them. That's not normally the case.
Verify the accuracy in each section of the credit report. Here's
what to look for when reviewing your credit report.
- Identifying information
Verify the accuracy of the report's identifying information --
your name, Social Security number, current and previous addresses,
date of birth and employment history.
- Credit information
The main section of your report contains credit information about
your accounts with banks, retailers, credit card issuers and other
lenders. The credit information section typically includes the
account opening date, your credit limit or loan amount, outstanding
balance, monthly payment and payment record over the past several
years.
- Collection Information
Your report will also reflect delinquent accounts that are referred
to a collection agency.
- Public record information
Another section of the report includes public record information
such as bankruptcy records, monetary judgments and tax liens.
Inquiries, or the names of those who requested a copy of your
credit report over the past year, will also be identified.
Positive information remains on your report indefinitely. Most
negative information remains for up to seven years, and bankruptcies
remain on your credit report for up to 10 years.
Identity theft is a
growing problem
Identity
theft occurs where someone uses your personal information to commit
fraud. Identity theft includes someone fraudulently using someone
else’s name, address, driver’s license number, credit
card or bank information, Social Security number, or any other personal
identification data without authorization. The thief uses this information
to make major purchases or to open credit card accounts, bank accounts,
and telephone service accounts, all in your name.
>> Read more on
How To Guard Againt Identity Theft
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