Thursday, March 6, 2014

FICO SCORES: The Ups and Downs

Nothing in life is simple.

When using your credit card, if you keep to under your spending limit your FICO score likes this.

When you then charge so much that you are very close to your credit spending limit, your FICO score will go down.

Why?  Read the quote below and see why no matter what you do, it is a "catch 22" situation. But what I leaned is that your FICO score keeps changing so one month it may be better than another due to your spending activities and how you are paying for them.

So one month you charge a good deal and the next month you don't owe too much.  Your score will be revised.

If asking for a credit increase is not for you, then try making a partial payment during your billing cycle to then open up your credit availability during that billing cycle's period.

Here is the quote:

  1. Proportion of balances to crdt limits is too high on bank / revolving accts  Hide details
  2. Consumers who use a high percentage of their available credit (generally known as utilization) have a higher risk of delinquency (falling behind on payments) and charge-off (loan default) over time. Lower use of available credit allows consumers who have the need to temporarily carry higher loan balances to do so, because they have available credit on their accounts. Consumers with heavier credit usage cannot absorb changes to their financial situation as easily, which can lead to higher risk over time. Keeping credit balances lower in relation to available credit will help reduce the negative impact on a credit score over time.

Credit Card Credit Limit Ceiling...How High is Yours?

Did you ever try to have your credit limit increased on your credit card?  Were you successful?  If not, here is what you need to know about credit cards and your spending limits.

Let's say you spend, on average, an amount not too close to your limit.  Let's say the reasons you don't are either because you don't need to most of the time, or if you charge a large amount, you might use up your limit and not be able to use your card again in that billing period. If the latter applies to you call your card company to request an increase.

Your card company may have a voice prompted system for this request and you do not actually speak to anyone.  In a few days you find out you were denied the increase.  The reason:  in the past year you never needed an increase because your charges never reached close to your limit. Now you have to call to actually speak to a representative in the credit area.  So you say, "If I had a higher limit, I would be able to use the credit card more often, but since I don't, I can't use the card all the time. And the response you get is, "But because you don't get close to your limit, the bank doesn't see why you need an increase."  It is a "catch 22" situation.  You can't use something you don't have.  This has nothing to do with whether you can't afford it or your credit rating not being good enough.

Now the representative says that they will do a "manual" credit line increase request. They ask you if you have a mortage and the amount and then ask for your yearly income.  They then ask if you have a minimum amount you would accept for the increase. Done.  Next thing you know, you have the increase. Granted, this is not always the case, but this is most likely what happens when you do a manual request. (I cannot promise that every credit card company functions the same way.)

Of course I am not advocating that you should spend more than you can afford. It is good to know how to go about this and what to expect if you should need an increase. Funny thing is that if you did spend close to your limit all the time, the credit card company may increase your limit without you having to ask.

Please look for my upcoming post about how all this affects your FICO score.  It will be short and sweet.