Bunch of asshats.

Credit scores are used for far more things than just assessing one's suitability for a credit card. Insurance companies, for example, will give you a better rate on your car insurance (and maybe other types of insurance) if you have a high credit score.

"- Closing accounts you no longer use"

That *does* hurt your FICO score, but it's not that simple. How much closing an account hurts your score depends on two things: (1) The credit limit of the account; and (2) The age of the account. It hurts more to close a credit card you had from 1997 with a $20,000 limit than it does to close a store card from 2007 with a $1,000 limit. And the "hurt" it causes on your credit score is temporary anyway. So limit the accounts you're opening and closing to the bare minimum.

TIP: If you know you're looking to get a refi/mortgage, or other important loan in the near future, don't open or close any unnecessary accounts months before you apply.

Seems like reducing risk would include lowering interest rates so that people would be able to pay down their credit cards, but that's just too forward thinking for a profit-only thinking bank.

It's not really a catch-22 for the banks, it is a catch-22 for the consumer.

I also posed this question on the BOA thread:

BoA Hikes Rates On Millions Of Credit Card Customers

And figured I would ask again here:

Discover just sent me a % rate change notice in the mail. The letter notice said that I could opt out by sending a letter to a certain address by a certain date to close the card and pay off the balance.

This notice also said that if I used the card after that date ~~~even if I had sent a letter opting out already~~ that the card use would be considered approval of the new rate.

Question: how can use of the card be considered agreement to the new rate or acceptance of the new contract rate? If this is so then can I send a letter to Discover saying that my new rate is 1/2 of their %rate offered and acceptance of my next payment check is aggreement to this 1/2 rate?

I do not understand how the card companies can say just using the card accepts this rate change yet I cannot do the same. Anyone care to explain this to me

@Daniel Parmelee: They make more money off of the negative activities- high % rates, over limit fees, late fees- than from merchant transactions.

When a company gives someone money (whether it's investing in the stock market, giving a loan, investing another company) they need to look at the RISK/IMPACT vs the REWARD to gauge their exposure.

If you want to borrow money for a credit card, it's a relatively low impact transaction, usually not more than 10k, BUT it's completely unsecured. In other words, you're not bringing anything to the table to guarantee you'll pay back the loan, which raises the impact of your borrowing a little bit.

To gauge how risky you are (how likely you are to pay back) they have 2 factors to look into: your debt history and your current income/debt ratio. Your debt history tells how well you've done in paying back loans and your income/debt ratio will tell if you have the means to do it. if you have no history with loans it makes you a lot riskier than someone with a spotless 30 year history. As a result, they'll either decline your application or try to mitigate their risk by front loading the debt with a higher interest rate so that they can try to get as much money out of you initially in case you can't pay it down. Another way to get a lower interest rate on a credit card is to get a secured card, or giving the bank collateral that they can keep if you don't pay. Some people have to do this to get the card initially.

I don't think most people would want to go through that.

It's not a perfect situation and there's probably a better solution, but when you have millions of people trying to get quick unsecured credit that's what happens. If they took the time to sit down with each person for a month to determine their credit worthiness before giving a loan there would be better results, but far less privacy and far more bank fees.

I do agree there has to be a better way, but I can see how the current system works, why it makes sense and how we got there.

I suppose they want to trim their balance sheets and reduce liabilities, but how far will they go?

I have a Visa through one of the local stores here, and my limit has been $1400 in the year that I've had it. Last month I made a payment of $1000 (leaving the balance $300). I just checked my statement online yesterday and, unfortunately I had a few emergencies come up that I had to use the card for (since I didn't have any cash in savings at the moment) and my balance was $1044, and my credit limit had been brought down to $1030.

So, they reduced it $270. I realize it could have been more, but what really got me upset is that they didn't bother to inform me. I called the customer service number on Saturday and asked why I didn't receive any notification about this, and he said they mailed a letter on 4/5/09 and I should receive it within 10 business days.

If you're going to do this, send the notice BEFORE you do it so people are aware of it! I'll be paying off this card and canceling it as I'm not doing business with banks that treat me like this.

I've said it before; I'll say it again: Credit Unions are your best friend, and darn near everybody in the US qualifies for one or another...

Credit Union Finder

The problem with living outside of the system is that you want to purchase a house. That's in the system. So if you want the house, you better get in the system. Or just pay cash for the house.

Perhaps it needs to be pointed out that the "do badly, get bailout" is now a *business plan*.

Give too much power to one entity (person / business / gov't) and the power will corrupt; add in that businesses have one priority: profit. Bad combo.

The only way to combat this "too big to fail" is to split up the corporations.

credit scores are not "a means of scoring people in terms of how much they are going to make a lender". They are a means of scoring the likelihood that they are going to default and cause the lender to lose a bunch of money. They measure past experience of usage of credit, so they need to have a credit history to look at to measure.

Sure, the ideal customer carries a balance but pays on time, but credit scores don't take that into account. A person who carries a balance that is close to their credit limit is going to have a high utilization %, and that will ding them. And credit reports don't distinguish between someone who spends $1000 on their credit card every month and pays it off in full every month vs. someone who has a $1000 balance and pays the minimum each month.

Credit scores are not, and never were a measure of the merit of the consumer, they are a used as a means of scoring people in terms of how much money they are going to make a lender. The ideal borrower is the one that carries a hefty balance and pays on time every time.

Put another way, you don't slaughter the cows that are friendly and good tempered, you want the fat ones with lots of meat. mmmmm meat

@supercereal:

Of course FICO punishes folks for trying to live debt free. Even if you have a long history of responsible credit use, car loans paid in full, student loans paid in full, credit cards paid in full, etc. if you try to reduce your reliance on credit (credit = debt) your FICO score will generally go down.

We don't like to use credit cards but we each keep one open in part to keep our FICO score above 800. And I'm of the opinion that if you are using your credit card for day to day expenses you are in debt (you may not pay interest on that debt if you pay it off in full and on time but you are in debt in that you owe that money). Why do we care about our FICO score because we wanted to refinance our home mortgage (the only debt we have) to a sweet super low new rate.

Yes, yes, we get it. Pay off your credit cards. This is brandied around like it's new advice and I'm sick of hearing it. If I COULD pay off my credit cards, I would, but being a student with low income and high expenses (ahem, tuition), I can't hit that magic "Pay Balance in Full" button quite yet.

Are people actually paid to give this advice over and over again? Do you really think we don't know this yet?

I love that people complain that the credit agencies have too much information about us and they are a privacy concern, but also want them to have information about your non-credit accounts (phone bill, rent, etc.) and how much money you have in you bank account at any given time.

When the minimum payment on the $10 balance was not payed, we received no mailed notices, no emails, no phone calls from the credit card company (Juinper) until we received a collection notice almost an entire year later. We now owed over $400 in fees and we payed it in full THE day we received the notice. It was a stupid mistake and we admit to it. We'd never been late on a single bill in our lives.

Today, we CANNOT buy a house due to the "excessive delinquency" on my wife's credit report. We have $10,000 down ready to go, but a $10 purchase has cost us everything. Even when we resolved the situation at the first notice we received, each month that the $10 balance was not paid is a red mark on her credit that won't disappear for 7 years.

In the current system, this is what we have to live with. I don't agree or disagree with the system, honestly. Personally, we have decided to live outside of it to the best of our ability. With 7 years of repenting to do for one mistake, there is not much incentive for use to build our credit anymore.

Credit cards are designed to profit off of our mistakes (and interest of course) so we can't just say that HAVING to use them is an innocent and minor annoyance.

The only reason we had the card that ruined our credit in the first place was to BUILD up our credit to buy a house.

I look forward to the day that paying $1000 in rent every month, on time, for six years means something when applying for an $800 a month mortgage.

They can keep the changes, I'll keep my financial peace.

Okay, off point, but the picture associated with this story is pretty lame. Why is a live round pushed into a credit card?

@Troy Hardin:

Too much credit? Yes it is a bad thing. The whole BS about available credit being used unwisely. Actually not BS, but in some instances it is.

BUT credit issuers look at your history with the issuer as well as your credit score. I have been with my banking institutions for longer than most Consumerist readers have been breathing air. I have an account which has been open for 35 years. Think by now the issuer has figured out my buying patterns and long term potential for default? Hells Bells the issuer can most likely tell you when/where/how much my next charge is most likely to be.

So when my credit lines are increased, what exactly is the issuer trying to achieve? Hope that I suddenly have the urge to remodel my entire house, add an inground pool and tennis court, spring for a new car or three as well as place the paid-in-full deposit on the around the world cruise for the extended family all in the same month and will use their card?

Yo, they know me. They KNOW none of that is about to happen, and if by some miracle it did happen, it ain't about to happen in the same billing cycle.

SO what is going on with banks and CC companies? Some idiot US Government agency has told them to lighten up on the credit rules and lend some $ at the same time another idiot US Government agency is telling the bank/CC company to tighten up on their credit risks.

Classic Catch-22

And I, and people like me, solve both problems. Increase my credit limit (impresses one idiot) knowing I will not use the increased limit, while the bank squeezes down the credit offerings to potentially less predictable customers which makes the other idiot happy.

@foodporncess: You don't understand. After atleast one account has been open 6 months you will have a score. If you pay in full each month before the Credit Card Companies report to the Credit Reporting Agencies, your utilization will be 0. FICO loves low debt and low util.

If you have no credit, how can they rate your responsibility with it?

@oneandone: Technically, if a cellphone company wanted to report on your credit reports, it would count in your FICO score.

@supercereal: Good point & nice analogy.

However, why can't FICO take into account more aspects of your financial responsibility? It's not credit per se, but things like paying rent and paying monthly bills (cellphone, etc) under a long-term contract generally don't count in your credit score - and I think they reflect a lot about what kind of a risk you are. They need more realistic data.

Those accounts need to be at least one year old to help your score.

In the long term, this will hurt them... when the economy recovers and consumer spending (which is about 2/3 of the economy) picks up again, they will miss out on the merchant fees and interest for all those folks that they cut off.
******************
I doubt it. People seem to have short memories, know that they are in part to blame for this mess, and love having credit cards.

Having too much credit available does not effect your FICO score negatively.

There are people on creditboards with 1million+ in Availible Credit and scores in the 800's.

I am sorry, but I highly doubt that. Is the score a FICO score?

www.myfico.com

Carrying no balance on a card can also be a negative mark. Having too many open lines of credit isn't a good thing. Iirc carrying a 30% balance looks best

Last time I checked, my score is around 850.

I just cancelled my Chevron card last night because they cut the limit to $100. I spend more than that on gas in a month! I guess when I went over that $100, they would be then charging me an over the limit fee. I called and cancelled. I'm happy to buy gas from another company in the future. Screw Chevron.

By the same logic, the NBA should immediately draft me because I say that I'm an amazing basketball player. Never mind the fact that I've never played and that there are no statistics to back up my claim...

Even better...buy a pack of gum and then return it.

Banks are being told to cut their risks as well as increase their lending.

My available credit is being increased and there is about zippo chance of me using the current levels of credit much less the increased levels of credit.

YOUR available credit is being decreased and you might need the available credit.

Anybody see a problem here?

Yet the banks are doing exactly what they are being told to do. Increase their lending and decreasing their risks. What a farking Catch-22.

*Sigh*

If you have no open credit accounts, how are they supposed to access your risk? Guess what? They don't. If you have no open credit accounts, or account opened less than 6 months, you don't have a FICO score.

Open a credit card and pay in full, 6 months from now you will have a credit score. If you have no credit, how is one supposed to assess how responsible you will be with it?

Lastly, if you have excessive revolving(credit card) debt, FICO will punish you.

If you have no debt but open accounts, FICO will love you

credit scores are one thing - a measure of how good you have been of dealing with credit in the past. If you've never HAD credit, there aren't any data points for them to look at.

It's not a "scam", and I don't see what the big deal about using a credit card for stuff you are going to buy anyway and paying it off each month is - hell, use a rewards card and the bank pays you.

It's not a perfect system, but it's not completely unreasonable that a creditor would want you to demonstrate a history of responsible credit use before loaning you a bunch of money at a low rate.

We went for a long stretch with no loans and no ongoing debts. Our credit scores tanked, worse than at any point when we owed money. Why? we had no loans, no credit cards and only had basic living expenses. Those basic living expenses don't show up on credit scores so our scores plummeted. Living within your means trashes your credit score. That is totally wrong.

The government needs to stop letting one private company totally own everyone's financial lives in total secrecy.

I completely agree.

You are not punished for living debt free. If you pay off your balance each much, you should have good credit.

[www.myfico.com]

Read whats on that page and you will learn a great deal.

Why not just buy a pack of gum and keep it active?

No, bank account balances and income are not a factor. If somebody has no CC debt and $10k in the bank, why should their score be higher than somebody with 0 CC debt and $500 in the bank?

[www.myfico.com]

In the long term, this will hurt them... when the economy recovers and consumer spending (which is about 2/3 of the economy) picks up again, they will miss out on the merchant fees and interest for all those folks that they cut off.

So once again, short term wins out over long term. You'd think they'd learn their lessons, but they don't.

So here is how you'll know that the economy has turned back around: when those credit card companies start flooding your mailbox with credit line increases and "please come back to us" credit card applications.

They'll pitch in 20% of what I pay over the minimum due for the next 4 statements, and they'll "pay" up to $400.

That sounds great, right? The catch is that they'll FURTHER reduce my available credit by the amount over the minimum due I pay (and the amount they pitch in).

I'll end up with a card with less than a $400 credit limit if I go for it, but I think I might just because it'll wipe out their profit from doing business with me.

Plus, I hate Citi now and would rather not do business with them.

"Living debt free"
FICO does not punish you for living debt free! If bothers me when people post things like this.

Get a Credit Card and pay in full each month, FICO does not punish you for this!
__________

"Closing accounts you no longer use"
You have less availible credit, if you paid in full each month on every card, this would not matter.
__________

"Paying down or eliminating your debt"
This increases your score, as you will have lower utilization.

My favorite was when they took my 15k limit card and "upgraded" me to the Signature Card which has "no limit"

It is unfavorable on my credit report to have a card with no high limit. Boa doesn't care about the consumers credit though.

@LogicalOne:
You also have to enjoy the irony in a name like FAIR Isaac...

For the record, the card was immediately cut up. Screw you, BoA.

Damn my responsibility. Damn NY. Damn the world.

Just one more way the Fair Isaac Corporation punishes people for doing the right thing:

- Paying down or eliminating your debt
- Closing accounts you no longer use
- Living debt-free

Why does one number generated by one company have so much control over our lives?