Dec. 29, 2008


  • I will be using this to select a mailing list to mail potential bankrupts!
    Memphis Bankruptcy Lawyer
  • All valid points on the credit worthiness on the surface. However, dig a little deeper and the article does not address a growing problem with the over simplification of these traditionally held beliefs by Fair Isaac and the three credit bureaus.

    Here's a situation:

    # of late payments in last 7 years: zero

    debt to income ratio: 45%

    Highest credit utilization: 79%

    # of revolving credit cards: 10

    Then, one of the credit card companies decides to lower the credit lines, making the utilization close to 100%. In response, the consumer pays down the credit card to bring the utilization under 80%. The credit card does it again on a different card that also belongs to this consumer.

    Overnight, the credit scores go from 729 to 650 (good to bad) although the consumer did nothing to change his profile.

    This is happening to millions of Americans because the above logic does not consider the unilateral actions of the lenders that may impact the overall credit worthiness of the consumer.

    In so many situations, there is a domino effect. The lower credit scores cause other interest rates to go up and access to credit to go down. The consumer's credit is spiraling downward.

    In a different situation, consider the consumer who applies for a 10% off credit card only to get the discount for purchases that will be paid off in full the following month. Cool, the consumer just saved $20. So, the consumer continues shopping 5 retailers this month using similar credit card promotional offers.

    In the background, the consumer's credit score is taking hit after hit because of the increases inquiries to obtain credit. There is absolutely no disclosures that there may be a negative consequence to these solicitations.

    These solicitations cause the credit bureau scores to decline. In some cases, the decline hits a minimum trigger that causes the APR to jump significantly. This APR jump causes the consumer to only make minimum payment. The reduction in payment causes the lowering of the credit lines, increasing the credit utilization and further spiraling the credit worthiness of the consumer downward.

    All of a sudden, the consumer realizes that something happened to her credit worthiness and decides to consolidate her credit cards. The APRs are way too high. So, she shops around and tries to consolidate her loan. She doesn't realize (because she is not told) that each time she tries to consolidate her debt, there is another ding on her credit.

    At the end of the day, she is not approved for any debt consolidation and her ability to pay the minimum balances is starting to be compromised. Then, one payment is missed. This takes a dramatic toll on her credit.

    The spiral continues.

    How is the consumer protected. It is articles like the above which, on the surface, make sense but lack a fundamental truth about credit policy decisions.

    Taymour Matin
  • Well written article that I will be able to share with my staff - informative and easy to understand.
    Charmaine Baker
  • Timely and well done! One to share with all lending staff.