Philadelphia Daily News opinion columnist Elmer Smith published a story yesterday dealing with credit card abuse.
Abuse, as in abuse of the consumer by the credit card issuer.
He missed one.
The practice of card issuers to reduce one's credit line.
Works this way:
Customer gets a nice letter from the card issuer discussing how rough these economic times are on banks these days.
It's so very hard on their customers, too.
To that end, your card issuer wants to help you manage your credit.
To you can keep your credit rating nice and high.
Thanks to them.
So they're reducing your line of available credit.
What they don't tell you is what that does to your credit score.
Because of FICO.
FICO pays a lot of attention to the ratio of credit consumed to available credit.
FICO likes it when there's a lot more credit available than consumed.
It works this way:
You've got a $5,000 line of credit from PawYourWallet bank.
You've used $1,000.
You've used 20% of your line.
This is good.
Now PawYourWallet informs you they are helping you out.
They reduce your line to $2,000.
To help you out.
Without spending another dime of your credit line, you are now consuming 50% of your available credit.
If FICO used color, you are now an Orange Alert.
When you go to buy a car, or finance anything else big ticket, you're not going to get the preferred interest rate.
That belongs to people who can manage their credit.
Which you obviously don't know how to do.
You've rung up half your line already.
Comments