The Dark World of Credit Rating Systems

 Al Ritter

Years ago when I was in business I had a Company Credit Card through Bank of America. I continued to use this card even after I closed my business down. One day when I needed a new car I went to the dealership and made application to use the 0% interest loan for 60 months.

I was turned down for that loan because “sir you have a low credit rating.” I wondered how that could be, I had a $50,000 credit limit on my card, and I could have purchased that car outright on my credit card! I paid cash for the car but vowed to delve into this credit rating thing a little more.

I had never subscribed to one of these reports offered by one of the three reporting groups but I was sure to get to the bottom of this one way or another. I was certain that I had a good credit rating after all I had paid off my first house in 14 years, and had paid my credit card religiously and never held a balance from month to month. There had to be a mistake!

This is where I made my first mistake, I called Bank of America to see about getting a card in my personal name rather than my company. The bizarre part of this whole thing was, even thought it was MY name on the card and not the company name, the credit worthiness was in the company name. Here’s where things got strange they refused to give me a credit card because my credit score was so low, even though I was purchasing and paying for items over $1000 monthly!

My temper got the best of me and I made my first major mistake. In retrospect I should have kept that card to use and found another card with a low credit limit and worked my way slowly into a better credit rating.

I’ve always been from the old school of “if you didn’t have the cash you don’t buy it.” Sadly you will never build a credit rating that way. I cancelled that card through Bank of America but finally found a credit card with a credit limit of $3000 through my bank, but they sure made a point of telling me that I was on a probationary period. Each year on the birthday of the credit card I would request a raise in my credit limit to which they agreed.

Ok there are really strange rules the credit rating bureaus use and I‘ll try to explain some. There are three main reporting bureaus otherwise known as CRAs. Experian, Transunion, and Equifax. They collect things such as past history of paying bills on time monthly also any and all loans including mortgages, car personal and if you paid them on time. These three CRAs then hand that information to two possible companies that use algorithms to calculate a score. Those two companies are FICO (Fair Isaac Corp.) or Vantage Score.

These scores go from 350 on the poor side to 850 on the excellent side. On the bright side I have gone from poor to well into the excellent side within 5 years. Sadly an excellent FICO score isn’t the determining factor of getting the help you need.

One thing you must know is that your credit score has NOTHING to do with your assets! You could have a million dollars in your bank and they may still not issue you a credit card. You could have a job paying $250,000 a year and a credit rating in the upper 700’s and they may not issue you a credit card with over a $3000 limit!

The CRAs use a strange rating system to raise and lower your credit rating. In the beginning they told me that as long as you don’t exceed 10% of your credit limit on your card you will be in good standing with us. But that statement wasn’t exactly true. Now understand that they have total access to your monthly spending on a credit card. If you spend ANY amount higher than you did last month they hit you for 4-7 points on your rating. Now the rebound period is not very long, for instance if you spend less the next month your points return within 30 days usually.

Another instance where you will get hit for credit rating is what they call soft and hard inquiries. In other words if you request a raise in credit limit on your card, apply for a loan, even make application to rent an apartment they will normally hit you for points , but they last longer.

They are basically telling you to spend very little on your card and make regular payments. Sadly we don’t live in a perfect world and expenses arise. If you are a homeowner you know exactly what I’m talking about! Some months you just can’t spend less.

Now let’s talk about “Rewards Cards”………..smh…….massive contradiction in terms! The more you spend the more you get back right? There is an incentive to put more on your card, but if you do you get hit points for spending more. So you think let’s just ask for another credit limit raise on the card so you do that and bang you get hit for another hard inquiry!

I recently asked for my annual raise in credit card limit, but it didn’t just come right away like it had in the past. I appears that I have now hit some sort of wall on my credit card limit. My income wasn’t contested as being too low, my credit rating was well into the 800’s. I have personal credit history of paying a mortgage off, and a 5 year history with them on my credit card that is flawless, but here is the reason they sent to me for refusal.

*Lack of comparable credit for the amount and or type requested*

Whatever all this means is strictly in their minds, but understand that Credit Ratings are never cast in stone and few things make logical sense.

To access your credit ratings merely google any of the aforementioned companies most are available for free, monitor them monthly to see the crazy up and down swings!