Re: Another signature card question

Anonymous · ‎01-31-2008

I'm sure a lot of people are tired of seeing signature card questions, but I'm trying to get a better understanding of ours.

I think it's general accepted that if you go over your credit limit you're going to be in trouble with your credit card company; over limit fees and potential rate hikes. And I understand from others on the forum that it will also hurt your FICO score, primarily with your utility calculation, but also maybe in other ways. My questions are: Does the FICO formula reduce a score for going over your credit limit on a non-signature card, and if so, do you get any long term penalties for having your "high balance" report as higher then your CL?

My question is geared toward using a signature card to protect you from CLD. One of the biggest fears on this forum revolves around rate jacks. Another lesser fear involves CLD. Can I use a signature card to protect me from a CLD? My theory goes like this. In order for me to get a utility benefit from a signature card I need to charge the card up to a level close to my CL. Since it's not really a credit limit, but a credit line, maybe I can even get a benefit from charging over my credit limit/line. Then, FICO will use the highest balance in the utility calculation. Stop me here if this is wrong.

Then, if the CCC ever issues a CLD, more accurately a credit line decrease, it won't matter to FICO, because FICO will me looking not at the limit, but the highest balance. The kicker is, and the point of my first question, will FICO penalize you in some other way for having a high balance greater then your credit limit? If so, maybe this would negate the benefits of my theory.

Anonymous · ‎01-31-2008

krystofur wrote:
Does the FICO formula reduce a score for going over your credit limit on a non-signature card, ...

Only temporarily, during the time when your balance is greater than your CL. Card is maxed out then, and that can hurt severely.

krystofur wrote:
do you get any long term penalties for having your "high balance" report as higher then your CL?

Not from FICO, but a manual reviewer may notice it and have questions.

krystofur wrote:

Then, FICO will use the highest balance in the utility calculation. Stop me here if this is wrong.

This is correct.

krystofur wrote:

Then, if the CCC ever issues a CLD, more accurately a credit line decrease, it won't matter to FICO, because FICO will me looking not at the limit, but the highest balance.

Probably unnecessary. FICO won't ever know about the CLD in the first place on a card that doesn't report CL.

But yes, your theory is correct. If you have no pre-set spending limit, you can charge over your credit line and not be penalized by your CCC, and then FICO will use that high balance as its ersatz CL, even though it's higher than the real CL. (FICO doesn't know that, though, because the real CL is never reported.)

Also keep in mind, in most cases you don't need to even let the high balance report as a current balance. Most CCCs report the highest balance ever on a card, even if it was never an actual statement balance or a balance reported to the CRAs as a current balance.

In that case, you can just carry the high balance for a couple of days before you pay it off, and the CRAs should find out about it the next time the card reports.

Anonymous · ‎01-31-2008

That's for breakig down my post so thuroughly cheddar! Just one thing I'd like to clarify:

cheddar wrote:

krystofur wrote:

Then, if the CCC ever issues a CLD, more accurately a credit line decrease, it won't matter to FICO, because FICO will me looking not at the limit, but the highest balance.

Probably unnecessary. FICO won't ever know about the CLD in the first place on a card that doesn't report CL.

But yes, your theory is correct. If you have no pre-set spending limit, you can charge over your credit line and not be penalized by your CCC, and then FICO will use that high balance as its ersatz CL, even though it's higher than the real CL. (FICO doesn't know that, though, because the real CL is never reported.)

See the thing is, even though it's a signature card and the CL shouldn't be used in the utility calculation, it still shows up in the credit limit field of my TC credit reports. So the number is being reported to the CRA's. I haven't pulled reports or scores from myFICO.com, so I can't compare the data yet, but the number is there on the TC reports.

Anonymous · ‎01-31-2008

krystofur wrote:
See the thing is, even though it's a signature card and the CL shouldn't be used in the utility calculation, it still shows up in the credit limit field of my TC credit reports. So the number is being reported to the CRA's. I haven't pulled reports or scores from myFICO.com, so I can't compare the data yet, but the number is there on the TC reports.

Ohhh, that changes everything! I thought this was a card that doesn't report CL.

In that case "high balance" is irrelevant for FICO purposes, and the reported CL will be used for utilization calculations. Nothing I said above applies!

Treat it like you would treat any other card. Most importantly, even though the CCC might allow you to go OTL with no penalty, do not let an OTL balance report to the CRAs. It will hurt a lot.

Sorry for the misunderstanding!

Anonymous · ‎01-31-2008

cheddar wrote:

krystofur wrote:
See the thing is, even though it's a signature card and the CL shouldn't be used in the utility calculation, it still shows up in the credit limit field of my TC credit reports. So the number is being reported to the CRA's. I haven't pulled reports or scores from myFICO.com, so I can't compare the data yet, but the number is there on the TC reports.

Ohhh, that changes everything! I thought this was a card that doesn't report CL.

In that case "high balance" is irrelevant for FICO purposes, and the reported CL will be used for utilization calculations. Nothing I said above applies!

Treat it like you would treat any other card. Most importantly, even though the CCC might allow you to go OTL with no penalty, do not let an OTL balance report to the CRAs. It will hurt a lot.

Sorry for the misunderstanding!

I don't mean to confuse you as much as I have been about this issue. But this is a signature card, the CL isn't supposed to be reported, but it looks like it is. But I take your point. Even though I am supposed to be able to go over my "credit line" without a problem, at this point I dopn't think I'd want to take the chance. Psychic is probably thinking, "just pull the darn scores and reports and see what it is really doing already!".

Anonymous · ‎01-31-2008

krystofur wrote:

I don't mean to confuse you as much as I have been about this issue. But this is a signature card, the CL isn't supposed to be reported, but it looks like it is. But I take your point. Even though I am supposed to be able to go over my "credit line" without a problem, at this point I dopn't think I'd want to take the chance. Psychic is probably thinking, "just pull the darn scores and reports and see what it is really doing already!".

No, I understand. The point I'm making is that FICO doesn't care if it's a signature card. If it sees a value in the CL field, it's going to use it.

Even though this card shouldn't be reporting the CL, the fact is that it is, and when it comes to FICO, you need to treat it just like any other non-signature card.

Since it's a signature card, the CCC won't care if you go OTL temporarily, but FICO will. So if you ever do go OTL, don't let it report that way. That's all I was trying to say.

Anonymous · ‎01-31-2008

Gotcha, thanks.

Dawn · ‎01-31-2008

cheddar wrote:
Even though this card shouldn't be reporting the CL, the fact is that it is, and when it comes to FICO, you need to treat it just like any other non-signature card.

I know this doesn't help anyone untangle the mess that exists with the CRAs (and subsequently FICO scoring on these types of cards) ... but ... according to the CDIA (Consumer Data Industry Association) there are guidelines specified for how to report flexible spending accounts (aka no pre-set spending limit accounts.)

These guidelines do specify that the CL be reported ... but that is in conjunction with actually designating the card to be "flexible" instead of "open" or "revolving."

Unfortunately, even if the cards were reported according to CDIA guidelines (and processed that way at the CRAs,) we still don't know if FICO is set up in such a way that they take the unique factors associated with these "flexible" cards into consideration. Maybe Barry could get some feedback for us on this?

If interested in reviewing the CDIA manual, if you do an Advanced Google search for Credit Reporting Resource Guide on cdiaonline.org and scroll down through the "hits" you should find a PDF file (TABLE OF CONTENTS) that is the complete manual. I would post the link, but I don't think it is proper to post links to downloadable files.

You can then search ~~for~~ the document for "flexible spending" and find FAQ 45 to see the parameters they specify for these cards ... not that it actually does any of us any good.

However, it is nice to know that there IS a way of addressing these types of cards, it's just that no one does it.

Message Edited by denbar2003 on 01-31-2008 12:47 PM

Anonymous · ‎01-31-2008

denbar2003 wrote:

Unfortunately, even if the cards were reported according to CDIA guidelines (and processed that way at the CRAs,) we still don't know if FICO is set up in such a way that they take the unique factors associated with these "flexible" cards into consideration. Maybe Barry could get some feedback for us on this?

Thanks denbar2003. This is the million dollar question, isn't it?

Anonymous · ‎01-31-2008

Good info, denbar.

I am assuming then, that Amex reports their charge cards correctly, because they show up as "Other" and not as "Revolving", and therefore don't get included in utilization calculations.

This would also lead me to believe that FICO probably does handle this type of account correctly, as long as it is reported correctly in the first place. If it's not reported correctly, then it's treated as just another revolving account.

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