October 10, 2009
-
Bad Economy Steers Credit Score Requirements, Pt. 3
Putting on the weight.Before the individual credit card lending banks do their own shaping (and they do heavily), the standard FICO rules look like this (in order of importance):
> Payment history (35%): This is the largest chunk of change. Whereas, the new FICO states that incidental late payments (less than once a year) should be mostly disregarded, the old rules made no such provision. Some of the better credit card lenders like BofA and most of the credit unions have been good citizens. Still, other bad apples will nail a credit card consumer to the wall for just one infraction. As market share shifts to those banks who care about their credit card consumers, it would be a very good thing for the worst abusers to go out of business FOREVER.
That said, there are those consumers who are just not fit to handle credit cards. Any chance they get to skirt the lender who trusted them, they jump for it. They need to be denied credit forever. For most of us, however, we just need some give and take in good faith.
> Amounts owed (30%): Credit Utilization (amount of credit we use compared to what's available on our credit card) is, rightfully, the second-most important criterion for gauging credit card risk. However, changing interpretations of risk have been steadily sliding to the lean side. It used to be that owing 50% of our allowance was fine. Last year that was shortened down to one-third (33%). Today, though, it has been further tightened to affect us steeply by 31%, on an accelerating scale.
Due to the harsh economic conditions, left from the Bush legacy, credit card banks and consumers alike have to play by different rules now. One of the greatest abuses today is the domino-tendency of a credit card lender dropping a consumers credit limit so low as to upset their credit utilization ratio. A person carrying a $299 balance with a $3000 credit will jump from only a10% CUR to a 99% CUR when the bank lowers their credit limit to only $300 (shame on you HSBC).