Thursday, March 26, 2009

Credit Games

Things we know - those with lower credit scores pay higher interest rates. Using up more of your available credit lowers ones credit scores, which will then bump up interest rates. Lowering available credit makes your current used credit larger in relation to available credit which can bump up your score. See, all that has to be done is lower available credit, which may lower credit ratings below that magical 750 threshold to raise interest rates. It basically looks like anything (or nothing) one tries to do - other than keep make keeping up with their credit score a full time job - will negatively impact one's credit score. This article from the News Tribune titled Banks' shifting credit terms can hurt your score explains it all. Let's take a look -

As the worldwide credit crunch has hit home in the form of reduced credit-card limits and home-equity lines, not all of this curbing is fair. In many cases, you may be targeted by zip code or other invisible criteria.

It’s not hard to get steamed about their spurious practices. Card issuers can legally raise or lower your limits and terms at any time. Most cardholders don’t know how to fight back and get better terms.

If banks clip your credit limit, it can hurt your chance to borrow at the best rates, especially if your record is spotty or you are a small business.

The chill is reaching consumers as banks are expected to cut credit lines by some $2.7 trillion, according to Meredith Whitney, a well-known Wall Street banking analyst. Some $2 trillion out of $5 trillion available may be “removed from the system by the end of 2009.”

The bottom line in personal credit is to maintain the highest credit score possible. While there are several scoring systems, the best known is the FICO program. Unfortunately, the details of how credit bureaus calculate scores, mostly determined by Fair Isaac Corp.’s system, are a trade secret.

Generally, any FICO score of more than 750 translates into the lowest finance rates on everything from cars to mortgages. But a good credit rating means some maintenance on your part, and some of the advice is counterintuitive.

For many it is a lose-lose situation. With the tightening of credit goes the lowering of credit scores. With the lowering of credit scores goes the tightening of credit. Pay more and get less. Our whole system seems to run on FICO - yet everything they do are trade secrets. One company that is not accountable has a lot of power over our lives...

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