Monday, October 13, 2008

Are Shrinking Credit Limits Silently Hurting Your Credit Score?


The Wallet, a Wall Street Journal online blog, wrote a piece about 45 minutes ago that serves as a nice prelude to my story tomorrow on "balance chasing (link here)."

At the Wallet, John Ulzheimer, president of credit.com, talks about the FICO impact of recently-lowered credit limits. What I really liked is that Ulzheimer is advocating keeping credit utilization at 10% or less. Most commentators use the 30% figure as a benchmark, which I think is way too high in this environment. Nice to see Ulzheimer touting the 10% figure.

From the blog: Are Shrinking Credit Limits Silently Hurting Your Credit Score? (link here)

“[Lower credit scores] could be catastrophic for some people,” says John Ulzheimer, president of Credit.com Educational Services. “And the problem is that the consumer doesn’t realize it’s happening.”

I did find this particular quote fascinating:

“You should make your credit score a priority right now,” Mr. Ulzheimer says. “Your credit score is as much of a wealth building tool as owning the right stock.”

Anyhow, give the blog entry a read. Think of it as a companion to the story I have written for tomorrow, which is titled: Chasing The Balance -- What It Is And Why It Sucks.

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11 comments:

Anonymous said...

good to know! I like the reaffirmation that “Your credit score is as much of a wealth building tool as owning the right stock.”

GlobCredit.com said...

Anon, you sound like a law student. Reaffirmation? Nice.

Thanks for posting.

Anonymous said...

Don't let credit card companies to chase your credit limits!Just max them out...and pay just a minimum payment.Doing this way, You are in control of the situation,not credit card companies.I and my friends,we all did this and we are very happy,because You'l never know,whats gonna happen tomorow....

Anonymous said...

I mean max them out by parking all cash from credit cards in Your pockets,not by buing anything!There are many creative ways to transfer credit cards credit lines into your pockets...

Sean said...

Anon@11:42-49pm:
Without trying to be disrespectful, that is the worst advice I've seen in some time. Not only does it cost you substantial amounts in interest, it also kills your utilization, thus kills your credit score. Even if you're working with a promotional 0% interest, you're still killing your utilization.

When it comes to credit cards, pay it off in full each month. Only way to do it.

Jen said...

“Your credit score is as much of a wealth building tool as owning the right stock.”

I like that and will quote that often from now on.

Sean, which part of the article do you feel is the "worst advice"?

GlobCredit.com said...

Jen, Sean was referring to Anon's post at 11:42 pm and 11:49 pm. Sean was saying that Anon's advice was bad.

Anonymous said...

Guys,just do a brain exercise and think where to invest that kind of money....If You do a right investment at this time(recesion time),You'l get a triple return.Of course that thing not for everybody.

GlobCredit.com said...

Anon is saying that you take the low-interest loan from the bank and invest it some place else. If you pick the right investments, you look like a genius. If you pick wrong, the family hates you for being a schmuck.

Thanks for the clarification, Anon. And, true, certainly not for everyone.

azntg said...

@Anonymous (poster incognito at 11:49pm):

Not a very feasible idea nowadays.

To the right person, this form of arbitrage used to be a very plausible idea back when many credit card companies offered 0% BT rates and charged no BT fees. Not only would you have an interest free loan, you could actually make good money if you put them in the right places.

Nowadays, 0% BT rates are hard to find and even harder is finding a creditor offering no BT fees. Furthermore, when creditors have an itchy trigger finger like they do today, every creditor will be jumping over each other to shut you down should you even consider maxing out and carrying the balance for an extended period of time.

GlobCredit.com said...

Az, that's the biggest problem I see. As soon as you load up on the low-interest BT and direct deposits the other banks swoop in. A single tradeline that is maxed out could be enough to push another credit card company over the edge.

There are still places to earn 3-4% but, as you pointed out, it's not easy to find the 0% deals today.

That said, my Merrill account does have a 0.99% deal for me. Fees are capped out at $75. What's more, it's not difficult to get the fee waived with Merrill (ask me how I know).

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