FinancialDominance.com

Capital One will soon begin to report credit limits to the three major credit bureaus. This is a welcome change from their previous stance of reporting only the outstanding balance. Simply reporting the credit limits is expected to increase the FICO scores of some Capital One credit card holders by 40 to 80 points within a few months. Why? Because “utilization”, or the percentage of outstanding credit card debt divided by the credit limit, is included in the “amounts owed” portion of the FICO score calculation. This portion makes up 30% of a person’s FICO score.

From MyFICO.com:

How can this affect a person who is getting a loan? Check out the following scenario from the Baltimore Sun:

…An increase of just 41 FICO points - from 659 to 700 - would 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 Corp., developer of the widely used scoring system.

Monthly interest and principal payments would drop from $2,135 with a 659 score to $1,914 with a 700 score. That $221 decrease would save the homebuyer $2,652 the first year alone - and tens of thousands of dollars over the term of the mortgage.

I consider it almost a crime that Capital One withheld this information for so long. The example given from the Baltimore Sun shows the impact of their unwillingness to share credit limits with the credit bureaus. If I were a Capital One credit card holder, I would be finding another card that offers a 0% balance transfer.

While on the subject of FICO scores, check out My New Choice’s blog for 5 steps to improve your credit score.

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