Creditors are notoriously one-sided when it comes to reporting credit: don’t expect a fair and balanced credit portrait if you miss a payment on your mortgage or fall behind on your credit card payments. Here are some things to know that could save you from painstaking credit card negotiations or a loan modification. Remember, your credit history speaks volumes about you. Effectively, it rates your fiscal responsibility and, unfortunately, is akin to your status as a citizen for creditors.
Improper reporting of credit utilization to credit bureaus
Some credit card companies—especially those issuing high-risk, high-interest credit cards– will set your credit limit in proximity to the highest amount you charge. If you have a card with a $1500 dollar credit limit, and charge 500 dollars max, you are effectively utilizing 33% of your available credit. This looks good to credit bureaus, marking you as prudent credit citizen. However, because creditors will often report your credit limit in relation to the most you have charged—500 dollars—it appears on your credit report that you maxed out your card. This is not good.
Issuing multiple cards to risky borrowers
Creditors don’t mind playing the paternalistic ‘good guy’ when they are dealing with riskier borrowers. They will often issue credit cards with $200 or $500 dollar limits to help people build or rebuild credit. In fact, some credit card companies specialize in issuing high-risk, low-balance credit cards. Things become convoluted and underhanded when a borrower asks for an increase in his or her credit limit and issued a second card. The borrower is then expected to account for two cards from the same lender, many that could have different interest rates and monthly due dates.
This is confusing and has led many borrowers into further debt because they aren’t able to manage multiple timelines and/or assume the conditions of the new card are the same as the old one.