September 1, 2009
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New FICO Study Gives Damage Report, Pt.1
Lender hazards vs. borrower hazards.With the new credit card laws coming into effect, it's worth noting some hazards that haven't been addressed. There are still some things the credit card lenders can do without giving you any notice at all. One of them is that the regs don't require an issuer give you advance notification before closing your credit card account all together.
Another thing that may catch you by surprise is to find your credit limit drastically reduced. There are factual reports of people having a $20,500 credit limit slashed all the way down to $5,100 without warning. This is an astounding 75% drop! It might not be very serious for a person who doesn't owe very much on the credit card. But, for someone who happened to owe $5,000 on the credit card and couldn't readily pay it off soon, the consequences could be very damaging. It all comes down to the FICO score.
Only as of recent, has the importance of the FICO score come to light. A few years ago, credit was easy and people didn't have to know to much to get along well with credit cards. Today, that's gone away. Now, millions of consumers are being squeezed out of credit as the numbers of those in default pile up. Credit card lending banks are being forced to take serious steps to reduce risk.
Fair Isaacs Corp, the people who bring you "FICO" have just released a report showing that consumers who owe "70 percent or more of their available revolving credit were found to be 20 to 50 times more likely to become delinquent on a credit obligation within the next two years." The baseline against who this group is compared against is the segment of consumers who only carry a 10% debt of what they could charge if they chose.