subject: Secrets that Hurt Your Credit [print this page] Secrets that Hurt Your Credit Secrets that Hurt Your Credit
Secrets that Hurt Your Credit
Do you like to work with puzzles? Well, credit reports do look like puzzles to thousands of people in America, and it is people like the Credit Physician who care about your financial image and want to bring you information that will help you steer clear of credit woes. Do not sit in the dark any more and wonder about your family's financial future - turn on the light switch and begin to do something to improve your credit. One day I was in a seminar and a young lady ask a very important question: "What is the worst thing a person can do to there credit?" My answer shook the room; I replied, "The worst thing a person can do to their credit is to do nothing at all." Yes, nothing. Do not listen to the statements that lead people to believe that over time their credit will repair itself, or like one irresponsible agency says, "There is nothing anybody can do to help you with your credit." Every time I hear that false statement I just want to scream because it came straight from Hell itself. Wow, Credit Physician those are strong words! Yes, that is because I have seen too many people turn their credit around because they wanted to learn, and they vowed to master their credit reports and learn the secrets to maintaining it.
People already know that bankruptcies, foreclosures, repossessions, and collections will hurt their credit. And it is no big secret that late payments are one of the causes of bad credit. But I bet you don't know about some of the things that actually hurt credit!
Here's a secret. Credit card companies often omit or inaccurately report credit card limits, and this causes your score to drop. About half of all consumers are missing at least one credit limit or have a limit that is being inaccurately reported on their credit reports. In other instances, credit card companies intentionally report a lower limit than you have. Why does this hurt credit? The credit scoring systems used by the different bureaus place a lot of weight on something called a utilization rate. The utilization rate represents your balance as a percentage of your limit. For example, if your limit is $1,000 and your balance is $300, you have a 30 percent utilization rate. If your balance increases to $500, your utilization rate would increase to 50 percent. In other words, you would be utilizing 50 percent of your available limit. The credit scoring formula responds more favorably to people who have a utilization rate that is no higher than 30 percent.
Now, let's imagine that you have a $300 balance on a credit card with a limit of $1000. Your utilization rate is 30 percent. Good news for your credit score, right?
Not so fast! If the credit card company is only reporting a $500 limit, you will appear to be carrying a 60 percent utilization rate. This hurts your credit score. Why would credit card companies intentionally report incorrect balances? There are many theories, and one suggests that these companies buy lists of borrowers from other entities whose limits are, for example, more than $10,000. The companies then send credit card offers with enticing interest rates to the people on these lists. Their goal is to encourage borrowers to switch cards. Your credit card company does not want your name on that list. They want to make sure that you remain a loyal customer. In an effort to keep you as a client, some experts say credit card companies report a lower credit limit than you actually have, or they do not report your limit at all.
This makes you less appealing to other credit card companies.
This might be good news for their client list, but it will hurt your credit.
