Credit Scores

Many have wondered whether credit scores and a high credit limit are related, and are surprised to learn that they are. But how do they work in conjunction and affect one another?

Here are a few ways:

• The credit utilization ratio. This ratio basically looks at the balance of your available credit with the amount of debt you have to determine 30% of your FICO score. In short, if you have a high credit limit, then your credit utilization ratio will lower, which raises your FICO score. So if you're looking for a higher FICO score, askingfor your limit to be raiseda good route to take.
• The credit inquiry. On the other hand, if you apply for credit often in hopes of raising your credit score, you may be disappointed to learn that with each application comes a new inquiry, and with each inquiry comes a lowering of your score temporarily. To avoid your inquiries causing this problem, you can make all of your inquiries within the same 14-day period. If you do this, they will be grouped together and counted as one inquiry.
• Irresponsible behavior. Another way that credit scores can be affected is through your irresponsible financial behavior. If you make charges without paying off your balances, you are likely to have your high credit limit reduced in a hurry. Of course, if this happens, you will see your FICO score reduce for two reasons past-due accounts and your credit utilization ratio raising.

Having a high credit limit can definitely have a positive effect on credit scores. So to take advantage of this benefit, it's important to make responsible financial choices with your credit to avoid having your limits lowered, along with your FICO score.

Credit card companies and a new financial profiling tactic called behavioral scoring may lower your credit line and eventually, your credit score as a result of the financial actions of others. A recent report states that companies have always judged you by your own financial actions, but now, in addition to stricter guidelines, the credit mistakes of others might have negative affects on your credit.

Behavioral scoringanalyzes the behavioral patterns of consumers to determine credit risk and if theyre viewed as a risk, credit card companies may choose to lower their credit lines. Here are a few items that credit card companies may use to profile you as a risk:

• Watch what you purchase. One characteristic of behavioral scoring is that banks are looking at the items and services you purchase and deciding on their own whether they are appropriate. If they determine that theyre not appropriate, or show you may be in financial distress, you may be viewed as a credit risk.
• Watch where you shop. Another characteristic is if customers shopping in the same stores as you have poor repayment histories, you may be punished as well sort of a birds of a feather assumption.

Unfortunately, having your credit line lowered as a result of behavioral scoring can have long-term repercussions. If your line is reduced, this affects the ratio between your available and in-use credit, which can lower your FICO score.

But whats worse about this practice is that individuals dont know when and how theyre being judged. So to become more informed, its good to contact your credit card company and conduct additional research on this practice to avoid your consumer behaviors, as well as others, having long-term affects on your credit and your life. One way to protect yourself is to enroll in a credit monitoring program offered by companies such as Go Free Credit. It can go a long way in protecting you and your credit by notifying you the instant there is a change on your report.

How do you feel about this practice being employed by credit card companies?

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