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2 Missing Numbers Can Doom a Loan

By Kenneth R. Harney
Saturday, January 1, 2005; Page F01

How far can your credit score plummet when your credit card issuer withholds your credit limit in its reports to the three national bureaus? And how costly could that be when you apply for a home mortgage?

The answer to both questions: A lot more than you might suspect. Consider this recent case documented by the software and technology firm CreditXpert Inc. of Towson. A loan applicant, a woman who lives in a suburb of Baltimore, had what is known in the mortgage industry as a "thin file" -- a relatively small number of banking accounts on file, including only one credit card.

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Her card history extended back 13 years with no late payments. Her account carried a generous $4,050 limit, according to CreditXpert researchers, but her card company had never reported either that important piece of information or her highest balance. At the time her bureau files were examined, she had a zero balance on the card. That, combined with her history of on-time payments, should have boosted her credit scores significantly.

But the card company's failure to report the credit limit or highest balance -- both crucial factors in computing the FICO scores that most mortgage lenders use to evaluate applicants and set interest rates -- knocked a shocking 66 points off the woman's score.

A 66-point loss is huge when it comes to obtaining a home mortgage. In her case, had she been applying for a fixed-rate, 30-year home loan of $225,000 in late December from lenders active in her market, it would have cost her nearly $9,000 in additional monthly payments during the first five years of her mortgage alone, according to Fair Isaac Corp.'s MyFico.com online rate calculator.

That extra expense would not have been caused by anything she did wrong, but rather by what the card company did without her knowledge: keep her good credit behavior a secret from potential competitors by withholding her credit limit and highest balance, thereby decreasing her credit score. Credit card companies sometimes try to hide their best customers' identities from other lenders trolling the credit bureaus' vast databases to prescreen targets for card offers. Typically the trollers ask the bureaus for lists of cardholders with higher scores, and avoid those with marginal or lower scores.

Home buyers with thin credit files -- typically younger households or minority group members who have not made extensive use of the credit system -- are the most vulnerable to this abuse, according to CreditXpert Vice President David D. Chung. But they are hardly the only victims.

Researchers at Chung's firm recently examined the credit files of a 40-year resident of Columbus, Ohio. He had extensive records at the national credit bureaus, with five revolving charge cards and six installment loans. However, because of missing credit limits on reports by two of his card companies, according to CreditXpert's analysis, the man lost 43 points from his credit scores -- again with painfully costly effects as a home buyer.

Several of the biggest card issuers told me, in interviews or e-mailed statements for this column, that their corporate policy is to report all customers' account limits and highest balances to the three national bureaus -- Equifax, Experian and TransUnion. Only Capital One Financial said it withholds limits as a matter of policy. However, credit industry researchers, including CreditXpert, say they routinely see consumer files with account limits missing or withheld, including from card issuers whose publicly stated policies are to the contrary.

One of the highest-volume card issuers, American Express, reports limits on some of its cards -- those with revolving monthly balances such as the Optima and Blue cards -- but does not report limits on its familiar Green, Gold and Platinum cards, which generally require payment of the full balance each month. According to Susan Korchak, American Express vice president for corporate affairs, "there is no preset limit" on these cards. So there is no credit maximum, at least as that concept is used by other card issuers and FICO scoring, to report to the national bureaus.

What can individual consumers do about flagrant nonreporting of limits by card companies that depress their scores and raise interest charges on home mortgages? Tops on the list: Get copies of your three bureau reports and check whether your card issuers are reporting fully. If you find they are not, complain bitterly, especially if you stake a lot of your personal credit history on your good behavior with their cards.

Then, if a card company refuses to report your credit limit, end the relationship. Transfer your balances to a company that will treat you as you deserve.

Kenneth R. Harney's e-mail address is KenHarney@earthlink.net. To read his Dec. 25 article on credit limit reporting, see www.washingtonpost.com/realestate.


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