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Credit, the American Public and Three Big Scams
Margaret under US Politics and Finance
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Many Americans struggle with their credit ratings. It’s no secret that we are in a “credit crunch” right now with not much money available for lending despite low interest rates and a fairly steady job market. But the credit industry and credit car d companies are doing many things that make getting and holding onto a good credit score nearly impossible for many people.
#1. You have to have credit in order to have a credit score. Not owing anyone any money gives you a poor score. The “logic” behind this is that you haven’t exhibited any kind of payment history, so companies who have money to lend don’t have any record to go by that you will repay your debt in a timely manner.
Scam — by giving non-debtors a low score, the available credit to them has high interest rates and the real reason is that the lenders are afraid they won’t make money off you because you pay your debts before they can collect any interest or only a very small amount of interest.
#2. Credit Card come-ons offering a high credit limit, then after a few months when you don’t charge up to the limit, they cut your limit down to where your balance is 90% of your limit. By doing this, the credit reporting agencies assume you’ve screwed up somehow and the credit card company has reason to fear you won’t repay your debt, so lowered your limit.
Scam — This results in your score going down because the credit rating services all want you to carry less than 50% of your limit as a steady balance in order to show you practice good credit management. By artificially raising your debt-to-available credit ratio, you appear to run your cards up and pay minimum amounts. This gives the credit card companies “reason” for increasing your interest rates.
#3. Closing accounts when you pay them off results in you receiving a lower credit score.
Scam — Closing account results in a reduction of your debt-to-available credit ratio. Credit scoring agencies view this negatively and reflect it that way in your score. This provides your remaining credit card companies with a reason to increase your interest rates.
You are allowed to write letters to the 3 major credit reporting agencies explaining why you closed accounts or protesting the lowering of credit limits pointing out your repayment history. The reporting agencies are required to keep these with your file and report them to anyone checking out your credit. Whether they help or not is doubtful, but it never hurts to be proactive about these things.
Knowing how credit reporting agencies and lenders think and operate gives you, the borrower, a tool to fight the scam artists with, but in the long run, the best way to handle credit is to keep your debt-to-income ratio low and tied up in tangibles like mortgages.
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