Fair Credit Reporting: 16.6.2.3 Ask for a Credit Line Increase
Contact the issuer for an already existing credit card account and ask for the credit limit to be raised.
Contact the issuer for an already existing credit card account and ask for the credit limit to be raised.
Have information on duplicate or old, closed accounts removed from the consumer report. Sometimes an account with negative information gets reported twice, especially if there is a collection agency involved.277 A consumer may also want to have extraneous accounts removed if a consumer’s score is being lowered because of too many credit card or revolving accounts. Be careful to ensure that this does not lower the “age of credit history” factor.
Do not pay off old collection accounts without reaching an agreement with the creditor or collection agency that addresses the consumer credit reporting issues. Paying off a collection account does not remove it from a credit report. Also, payment may “refresh” the age of the account, showing it as current collection activity.279 According to practitioners, there have been examples in which payment of an older collection account has decreased a credit score by fifty or more points.
Find out on what day a credit card issuer furnishes information to the consumer reporting agencies. Pay the balance off before that day to create a zero ratio of credit used to credit limit, which will increase the “available credit” factor. If a consumer carries a balance on more than one credit card, move the debt so it is evenly spread over these cards and uses up less than thirty percent of the cards’ credit limits.285
Consumers should make sure all joint accounts are listed on the credit reports of both accountholders. Married consumers should also make sure if they are authorized users on their spouse’s accounts, the account histories are reflected in their credit files (if the account has a good history).286
There are organizations that offer services to raise a consumer’s credit score, most particularly during the mortgage lending process.
A fundamental discomfort with credit scoring systems is the idea that a person’s entire “credit persona” is reduced to a number. The rigidity of a credit scoring system and its mechanistic application leave no room for the exercise of human insight and discretion in evaluating applicants.
Credit scores are used to determine, not only whether a consumer will be approved for credit, but at what price the credit will be provided. Essentially, the lower the credit score, the higher the price for credit. The website for FICO even provides interest rates quotes for home mortgages based upon a consumer’s credit score. Note that the FCRA requires creditors to give consumers a notice when they receive a higher-priced loan on the basis of their credit score, which includes a copy of that score.301
No matter how valid a model may be, it is no better than the data it is given. If a consumer’s credit history contains inaccuracies, their credit score will be inaccurate. In other words, credit scoring models are developed to assume perfection in credit reporting, which is a fundamentally flawed assumption. Credit history files at the nationwide consumer reporting agencies are notorious for their lack of accuracy.332
Because of the way credit scoring models weigh data from a credit file, certain information that is not negative in the abstract will have an adverse effect on a credit score. This information may or may not be accurate.
One of the most significant problems affecting credit scores had been the failure of certain credit card issuers to report the credit limits on their cardholder’s accounts. Instead, the CRAs would substitute the highest balance on that account as the credit limit for that tradeline.343 Since one of the factors in a scoring model is the ratio of credit used to credit available, this practice would depress a credit score by making it seem that a consumer had “maxed out” on the account.
Another problem occurs when creditors fail to furnish information, particularly positive information, to the CRAs.353 The lack of positive information may artificially depress a consumer’s credit score.
Sometimes a credit account will show up multiple times in a credit file,361 or derogatory information within an account history might show up multiple times, even though it only occurred once.362 If it is an account in collection, it may be reported by both the collection agency and the creditor, creating a false double negative effect on the creditor score.363 The failure of the CRA
Misreporting the type of account may lower a credit score.365 For example, consider if a mortgage account is reported as a revolving account. Suddenly, the consumer seems very over-extended. For example, a common error by furnishers is the designation of mortgage accounts as “installment loans.”366 At first glance, this would not seem like a critical error, but it creates substantial problems for the consumers’ credit scores.
Even simply reporting old, closed credit card accounts with no balance may hurt a credit score, if the consumer is considered to have too many of these accounts.368 Because they are not technically negative, these accounts are not subject to the FCRA’s seven-year limit for adverse information, although positive accounts are generally deleted after ten years.369
Credit scoring models must be initially validated when they are developed. This means the model must be tested against databases of loan files where the results of the loans (good or bad) are known. The models must also be re-validated periodically. Without re-validation, a credit scoring model can lose its accuracy.
Many credit scoring models were developed in booming economic times and there are questions about how predictive they were during economic recessions.382 Several studies, discussed below, have raised questions with respect to home mortgages. Credit scoring models also may have underestimated the effect of the economic slowdowns on credit card borrowers.383 However, FICO claims that its scores perform well in both good economic times and bad.384
Even if a credit scoring model is perfect and the data is one hundred percent accurate, the model may produce wrong results if it is not properly used by lenders. There are a number of problems stemming from lender misuse of credit scoring models.
In the past, scoring models would apparently lower a consumer’s credit score simply on the basis that the consumer had entered credit counseling and a debt management plan. Supposedly, the models no longer do this. However, entering a debt management plan could initially have a negative impact because many accounts will be closed and reflected as such on a credit report.
Consumers in financial distress will sometimes negotiate a modification of the terms of their loan with their creditors or will receive a forbearance allowing them to pay late or miss payments. Previously, loan modifications had been reported by the creditors using the Special Comment Code “AC”403 that resulted in a lowering of the consumer’s credit score.404
Medical debt is very different from other types of consumer debt, such as credit cards or auto loans.
As long as there have been credit scores, there have been concerns that scoring systems contain biases that disproportionately impact minorities and other groups protected by credit discrimination laws.428 Numerous studies have found that minorities as a group have lower credit scores than whites.429 They are also more likely not to have credit scores at all, with about 27–28% of African Americans and Latinos lacking a score, versus 16% of whites and Asian Americans.
In addition to disparate impact on racial minorities, research indicates that low-income consumers, renters, and other groups have lower credit scores as a group.436 These gaps between “good” and “bad” scorers might also be self-perpetuating, as low credit scores impede economic advancement, which in turn prevents the consumer from a better financial situation that could improve their credit score.437
A frequent question asked by practitioners is how a particular FCRA or other consumer law violation affects a consumer’s credit score. Credit scores sometimes factor into the measure of damages in a case, especially if lower scores resulted in higher rates for credit or insurance.455 Some have argued that a consumer’s credit score is a property right, and thus harm to a credit score alone is a form of damages.
Another controversial use of credit scores involves the determination of whether a consumer will receive utility service and have to pay a deposit for such services.482 The use of credit scores by utility companies has been challenged as undermining their common law duty to serve the public and violating the prohibition against consideration of a “collateral” matter in determining whether to provide service.483