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On money

Fudging on card limits could hurt credit score

By HELEN HUNTLEY
Published June 12, 2005

Those credit reports we can now get for free are turning out to be a treasure trove of information. In addition to checking for accuracy and looking for signs of fraud, you may be able to spot one of the ways some credit-card issuers are putting their own interests ahead of their customers'.

Some issuers are reporting their customers' payment histories, but refusing to divulge their credit limits. Why? It makes their customers appear less attractive to competitors.

Failure to disclose limits has the potential to lower credit scores, which means some customers will be denied credit or offered credit at less attractive rates as a result.

Take my Capital One card as an example. Although the company recently informed me it had doubled my credit limit, to $10,000, my credit report doesn't reflect that. Credit bureaus only know the highest balance I've ever had on the card, which was $2,305. That's the number that then gets used in credit scoring.

How does that hurt? One factor in your credit score is credit utilization. A $2,000 balance is 20 percent of a $10,000 limit, which would make me look like a good risk. But it's 87 percent of $2,305, which would make me look like a bad risk.

A high utilization rate on one card would not hurt my credit score much because I've been using credit a long time and have lots of other accounts. But it would hurt young people and others who have thin credit histories.

"We report all credit behavior of our customers, fully, completely and accurately," Capital One said in a statement responding to my inquiry. The company says credit limit are not included because "they do not represent the individual's credit behavior and it is competitively sensitive information."

Besides Capital One, the New York Times says known offenders include Citigroup, Discover Financial, American Express, HSBC and many store brand credit cards. However, my husband and I have accounts with Citigroup, Discover and American Express, and our credit reports show they all reported our limits accurately.

You can find out if any of your lenders is withholding information by getting your free credit report online (www.annualcreditreport.com) or calling toll-free 1-877-322-8228. When you have it, check the credit limit it shows for each account against the credit limit shown on your most recent credit card statement. If you find your true credit limits aren't reported, you have a couple of options to prevent damage to your credit score.

Option one is to raise the high balance number by charging a large amount on your account, paying only the minimum payment the next month, then paying off the balance the following month. The drawback is that you will get charged interest for carrying a balance.

Option two is to drastically reduce your use of the card. Charging a small amount a few times a year will keep the card active and have a positive impact on your credit score. That's what I plan to do.

You said you can change or revoke your revocable trust while you are alive. Please help me find a way to change my trust. I have a problem with my son and he won't sign. I asked a lawyer and he wanted $10,000. I am a 76-year-old widow and I don't understand the law. A copy of the paper is enclosed.

If you had a revocable trust, you could revoke it. What you sent is a deed giving your son title to a property while allowing you to live there during your lifetime. Apparently you chose to have the property titled this way when you purchased it, something you have come to regret four years after the fact.

You have a legal problem, so you need a lawyer. Speak with two or three lawyers to find out what they think your best options are for pursuing this case and the odds of success. You can ask the bar association in your area for a referral.

Helen Huntley writes about investing and markets for the Times. If you have a question about investments or personal finance, send it to On Money. We'll try to answer those we think are of greatest reader interest. All questions must be submitted in writing, but readers' names will not be published. Send questions to huntley@sptimes.com or Helen Huntley, Times, P.O. Box 1121, St. Petersburg, FL 33731.

[Last modified June 12, 2005, 00:38:17]