How Credit Scores are being lowered by your Credit Limits. Rescoring to the Rescue!!

Over the last 6 month, I have seen an alarming problem for borrower’s credit scores in which they have no control over. Many credit card companies are lowering the credit limit for card holders as the balances are being paid down. I have written several times about how the ratio of a credit card balance to the credit limit can affect your credit score negatively. One way to increase your credit scores is to have less than 30% usage of your credit limit. For example if you have a credit card that has a balance of $300 and your limit is $1000 your credit scores are not going to be affected. If your balance is $900 and your limit is $1000 then your scores are going to be lowered because you are “close to being Maxed” Credit Scores don’t like you being “Maxed Out”


With the “credit crunch” we are currently in many banks are lowering the credit limits on some of their card holders as the balances are being paid down. Banks are doing this to limit their credit exposure, reduce their risk. In doing this, it is directly having a negative effect on the card holder’s credit score because it looks as if they are maxed out even when they are paying down their balances. I am not sure how credit card companies decide on how to reduce theses card holder’s limits but if it is based on credit scores they are adding to the problem.


For several of my clients who are trying to increase their credit scores by paying down their credit usage to under 30%, I have figured out a solution that is not effected by the credit card companies attempts to lower balances.


Rescoring is a process that updates information on credit reports with current information. I pull a credit report on a client who has a credit card (more than one) with a balance that is above 30% usage of credit limit. We then ask the customer to pay down the balance to less than 30%. The customer provides us a statement (usually an on line statement) that show the new balance less than 30%. We take that statement and provide it to our credit reporting company and they forward it to the Credit Bureaus. They Credit Bureaus verify the balance and adds the new balance to the credit report. Then a new credit report is pulled with the new, higher scores. We do not update the credit card limit, so it is not reduced, only the balance is.


This process takes less than a week and can make the difference in receiving an approval or getting a lower rate on your home loan. I have had great success with this process, just yesterday I was able to issue a First Time Home Buyer an Approval after months of trying to pay down balances only to have the banks lower his credit limits. It is very important to work with a loan officer who is experience in this process. There are very specific steps that have to be followed and if they are not your scores will not increase.