Capital One does more than provide television viewers with funny commercials.
On Saturday, Capital One Financial, one of the leading credit card companies in the United States (What’s in your wallet?), announced that they will start reporting cardholder’s credit limits to all three national credit bureaus — TransUnion, Equifax, and Experian. The move, which has been praised by several pundits in the world of credit, could potentially raise the FICO credit scores of over 50 million consumers across the country.
In recent months, Capital One has come under intense criticism from consumer and lending industry groups for withholding its customers’ credit limits in regular reports released to each bureau — a method which has lowered consumers’ credit scores for years. This is one of the many reasons that led to a change in the system.
Why is this headline news?
According to Washington Post financial columnist Kenneth Harney, “Higher FICO scores, in turn, will allow Capital One cardholders to qualify for lower mortgage interest rates when they buy or refinance homes. An increase from 659 to 700 would have cut an applicant's mortgage rate quote last week from 7.68 percent to 6.59 percent on a 30-year fixed-rate mortgage of $300,000, according to Fair Isaac, the developer of the widely used scoring system.”
He continues, “Although most consumers are unaware of it, their credit scores can be artificially depressed if creditors do not report their credit limits. That's because Fair Isaac assigns a heavy weight -- 30 percent of a person's score -- to what is known as "utilization" of available credit. Utilization basically boils down to this: If you've got a card with a $5,000 credit limit and you're carrying a $4,750 balance, you've got a 95 percent utilization rate. FICO's scoring system -- which runs from 300 to about 850 -- subtracts points for high ratios. The rationale is that people who are maxing out their cards are perceived as riskier and more likely to fall behind on payments.”
This is great news for all consumers with an established credit history everywhere. However, even with a boost to your FICO credit score resulting from the end of Captial One’s long-standing practice, you still need to take the appropriate steps to continuously improve and maintain a strong credit history. One of the best ways to do this — signing up for a credit monitoring service — is as easy as sinking a three-foot putt. Credit monitoring services, like he one provided by Privacy Matters, provide instant alerts to any changes in your credit report — some of which even offer constant access to all three leading credit bureaus. Not only will instant credit alerts allow you to easily detect and quickly respond to identity theft, you will also have the opportunity to fight any discrepancies in your credit report — which could potentially lower your credit score —immediately.
I must say, the Washington Post is consistently one of the best sources to go to for credit-related news. I would recommend checking out the financial section on the Post’s website on a regular basis.
Other news from the world of credit report and credit scores:
“Bad Credit, good business,” The Kalamazoo Gazette
From the article:
“Subprime credit: People with subprime credit have low credit scores because of their spotty credit histories or because they lack credit histories. Lenders consider loans to them high-risk.
The costs: Subprime borrowers can expect to pay high interest rates. Most banks don't deal with subprime borrowers, which limits these borrowers' choices. And the companies that do extend loans to people with poor credit will charge a high rate to compensate for the risk.
How it works: In auto financing, subprime customers get chances to improve their credit scores by paying off loans. The auto dealer finances the deal or works with a loan company to finance the deals and then reports positive payment records to credit agencies.”
Again, in this article, another reliable source stresses the importance of owning a high credit score. Check out the full article for more information.
In another interesting column that filled up the pages of the Money sections of your newspaper this weekend, journalist Humberto Cruz discusses the recent credit study — which produced staggering statistics about the general lack of knowledge among Americans when it comes to their credit score — conducted by the Consumer Federation of American in association with Washington Mutual.
For more information on how to improve your credit score, click here.
And in case you missed it — possibly because you were stressing out about a poor credit score — San Francisco Giants slugger Barry Bonds belted his 755th career home run on Saturday to tie Hank Aaron for first place on the career home run list. In the opinion of this blog, the blast, an opposite-field shot to left field in the second inning of the Giants’ extra-inning loss to the San Diego Padres, although a major story, pales in comparison to Capital One’s record-breaking practice change. The same could be said about Alex Rodriguez’s 500th home run, which was hit just hours before Bonds’ historic long ball. Rodriguez, who became the youngest player in Major League Baseball history to reach the 500 home run plateau, may not have to worry about his credit score as baseball’s $250 million man (this number will grow considerably this off-season), but the rest of us need to monitor our credit score at all times. So if you’re not in the 500 home run club, click here to get your FREE Triple Credit Report.
Controversy or not, the Credit Report and Scores blog would like to congratulate both players for their monumental achievements, landmarks in the history of the game. For the record — and you probably didn’t hear it first — Rodriguez will end his career as baseball’s home run king in the opinion of the writers of this blog.
We would also like to give a shout out to Tom Glavine for picking up the 300th win of his career in the New York Mets 8-3 victory over the Chicago Cubs last night.
On a side note, please check out our new video.