Credit Card Companies Can Increase Your Mortgage Costs
A common practice by some credit card companies can negatively affect your credit score, costing you thousands of dollars when seeking a mortgage, even if you have good credit. According to a study by the Federal Reserve Board, these companies are failing to report your credit limit to the credit bureaus, and those missing credit limits can often affect the interest rates you’re offered when you need to borrow money for a home.
The reason for this omission is simple; it reduces the likelihood that you will receive credit card offers from other companies. When your credit limit is omitted, your information is incomplete, and your score is lower than it otherwise would be, through no fault of yours.
In a recent article, columnist Ken Harney offered an example of the harm this omission can do. “According to Fair Isaac, a 677 FICO score in today’s market would qualify a borrower for a 6.23 percent 30-year fixed rate on a $150,000 home loan. A 30-point drop in that score because of non-reporting of credit limits would push the best rate available to 7.38 percent. Monthly principal and interest to the applicant with the artificially depressed score would be $115 a month higher than it should be.”
If you think this is probably only happening to a few people, think again. The Federal Reserve Board study looked at the credit files of more than 300,000 people, and discovered 46 percent of them had omitted credit limits in their reports.
Don’t let this practice cost you money when borrowing for a home, automobile or other purchase. Call your credit card companies and ask if they’re withholding your credit card limits. TFCU cardholders can rest assured that we do not engage in this practice.