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Tips for consumers to get credit where credit is due

By Broderick Perkins

Three federal suits and federal regulations expected later this year are designed to address the habit some credit card issuers practice: Not reporting your credit limit to the major credit bureaus, a practice that can lower your credit score.

That doesn't mean you should wait months or longer for the judicial system to render a verdict or the federal regulatory bureaucracy to come to your rescue. Lower scores add to the already rising interest-rate cost of borrowing money, including mortgages.

To the contrary, here's why you may need to take action now. Three class action suits filed by Greenville, S.C., consumer William A. Harris Sr. in the Greenville U.S. District Court allege the three major credit bureaus--Equifax, Experian and TransUnion--allow credit card issuers not to report credit limits.

The practice, the suit charges, violates the Fair Credit Reporting Act, which requires that credit bureaus follow "reasonable procedures to assume maximum possible accuracy of information in consumer credit reports."

When the computerized credit scoring system doesn't find a credit limit, it assigns a credit limit to your account. The assigned limit can make it appear as if you've nearly tapped out your credit, and that effectively lowers your score, according to experts and a benchmark 2004 study of 300,000 credit reports, the Federal Reserve's "Credit Report Accuracy and Access to Credit."

Generally, the more credit you use against your credit limit, reported or established by the credit scoring system, the more your score suffers.

Along with credit card companies that assign credit limits, other credit card companies such as American Express don't assign credit limits. The effect is the same. A simulated credit line can scramble your score.

Credit card companies say the practice of not reporting credit limits discourages competitors from siphoning away customers because competitors can't get a real bead on a given consumer's credit card use.

Perhaps, but the practice is one of many that makes for a lack of uniformity in credit data collected and that's something federal regulations are out to fix.

In 2003 the Fair and Accurate Credit Transactions Act amended the Fair Credit Reporting Act, in part, to identify and adjust practices that can compromise the accuracy and integrity of information furnished to consumer reporting agencies. FACT Act regulations specifically designed to remove a host of data filing inconsistencies are due out later this year.

But why wait? You can't change your credit score over night, but experts say you can begin to improve it.

* Get your free credit report from the only FACT Act-sanctioned service, the federally mandated AnnualCreditReport.Com. You can actually get three free credit reports each year, one from each of the three credit reporting agencies. Check your report for companies that don't report your credit limit and other questionable information and errors. You may have to pay a small fee for your credit score, but you'll need it to check back later to determine if your efforts have improved it.

* Be the best you can be as a credit consumer. Pay your bills on time. Use credit judiciously, keeping the ratio of balances-to-credit limits at 50 percent or less. Whenever possible, use less expensive credit, including home equity loans.

Paying off debts is always a better strategy than consolidating. However, a long-term strategy, keeping the ratio in mind, is to consolidate and or pay down large balances, leaving one or two credit cards with a moderate, reported credit limit for emergencies.

After you consolidate credit bills or pay them off, specifically demand, in writing, that the creditor close the account and acknowledge to you that it has done so. With that request also demand that the creditor report the closures to the credit bureaus and the fact that you requested the closure. Otherwise it could appear that you have large stashes of unused credit. That can lower your score.

* Shop around for the cheapest rate and best terms, and avoid credit cards that don't report your credit limit and credit cards that come with no credit limit. Special zero-interest credit cards can be a windfall if you understand the terms and religiously adhere to the small print. Likewise, shop around for all credit from car loans to mortgages.

* Don't double dip. Applying for two or more lines of credit simultaneously may or may not affect your score right away, depending on the type of credit, and the length of time over which you trigger multiple inquiries, but it could send the wrong message to creditors that you may be in financial trouble or biting off more than you can chew.

Shop around first, then apply for the single card, mortgage, car loan or other financial credit that's best suited to your needs.

Later, if necessary, build credit slowly, without opening too many accounts in rapid succession. If multiple applications lead to opening many accounts in rapid succession your score will suffer.

Real estate writer Broderick Perkins, executive editor of San Jose-based DeadlineNews.Com, writes regularly for this newspaper.