21 July 2006

You Are Not A Number

You are not a number, but your credit report boils down to three numbers, one each from Equifax, Experian, and Trans Union. These three credit reporting bureaus compile information reported to them by your creditors (the companies you owe money to).

Using software developed in San Rafael by Fair, Isaac and Co. (FICO), each bureau computes a three-digit score ranging from 350-850. Lenders use these numbers in many ways to determine the cost of the money that you borrow.
At my desk, I find that 1 in 7 credit reports has an error. Looks like I need to re-calibrate my eyeballs.

In 2004, Federal Reserve Board researchers examined 310,000 individual credit files and found that 46% were missing at least one credit limit from their credit reports.
What's that mean for you?
Without knowing the limit on your account, the software substitutes your current balance for your missing limit and determines that you are spending at 100% of your available credit for that account --- artificially lowering your FICO credit score by 20-50 points.

Example : you have an account with a spending limit of $10,000 and you have spent $4,000. You are at 40% utilization of your limit. If the lender does not provide the $10,000 limit information, the software will substitute $4,000 as your limit, making your utilization 100%. This lowers your credit scoring.

Capital One Financial is not the only company, but with 49 million customers, it is the 4th largest issuer of Visa and MasterCards in the USA & is the best known offender of this practice. Their reasoning? To prevent competitors from raiding credit files and making offers to Capital One's customers.

A class action lawsuit has been filed in South Carolina against each of the three national bureaus for violations of the Fair Credit Reporting Act in knowingly allowing Capital One to omit the limits.

Stand by.


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