March 25, 2009
-
News: When FICO Score is Jeopardized, Don't Take it Lying Down.
Most people don't give much thought about what happens to their FICO Score when their limits are lowered or unused credit card accounts are closed. These actions will lower FICO ratings for millions of credit card consumers but, that affect isn't given much attention at the time. That's probably because the change is indirect, doesn't happen immediately and largely, goes unnoticed until there's a problem. By that time, unfortunately, it's much harder to fix and at best, takes time. So, anyone relying on credit cards or who will be needing credit of some kind in the future can benefit from understanding a few things to watch out for and what to do about them.
Right now, about 40% of the credit card lending banks are reducing credit limits. Unused (‘inactive') credit card accounts are being closed by the millions and this practice will to worsen with time. Credit card interest rates will be jacked on consumers who have done nothing wrong simply over ‘invisible criteria' like a person's zipcode. These banks aren't trying to be mean nor uncaring. They're in trouble, too.
Prominent Wall Street banking analyst, Meredith Whitney, is appearing more like Paul Revere these days then a typical investment analyst. She tours around announcing what she deems, is almost a doomsday. She may well be right when she predicts that, within a year's time, credit card credit availability is going to diminish by about $2.7 trillion. Over half of the available out there now will disappear. She may be right but, it's important to consider that most of the credit that's disappearing isn't being used by anyone anyway. Also, new credit will still be available, just not to people with low credit card (FICO) scores. This could definitely hurt consumers who are in good standing but have their FICO Scores lowered simply because the banks need to reduce risk exposure and need to reduce available credit. This article is only a primer of a more extensive series that explains what to do about it. For guidance on what to do, please continue reading with the article series entitled: "Action to Avoid Jeopardized FICO Score".