December 16,2008
-
Ever-changing CC Approval Climate, Pt. 1
– Then and now.Almost like a weather report, things are always changing as the various forces interact with and against each other. Credit card scores are gaining clout, but changing how they behave as well. So, it may be helpful to keep abreast on developments in that area from time to time. Since these extremes are stress-testing systems that have not been tested under such strain, new ideas are being bounced around in an effort to find the best remedy to deal with the strain. The reason this is important to consumers is because they're actually on both ends of the stick. On the one end, the credit card industry is dictating changes that effect them while, on the other end, they are affecting the credit card industry. They need a successful working relationship with each other.
One of the key controls is the FICO (Fair Isaac Corp.) score. This control itself is being re-calibrated to better facilitate risk control. Credit card lending institutions start with this benchmark and then perform some tweaking of their own. Among other things, this is how they decide approvals, rate hikes, line limits and account terminations. Every month these ratings are reviewed, updated, adjusted, and even ‘weighted'. A year ago they were fairly straight forward. Six months ago they were trimmed. Now, their even more strict. The range goes between 300 and 850, from worst to best. Six months ago a 500 score was good enough to open a decent new credit card account. Now the minimum is 700. Six months ago a minimum good score was 700. Today it is 730 or higher.
Again, we talked about ‘weighting'. Basically, some things are more important than others and, even those criteria are changing. It used to be that carrying a 49% debt load (being in debt for 49% of your credit line at the moment the data is gathered) was OK. Today lenders are looking more favorable on those credit card debts under 33% of the account's limit.