Help a Reader: Credit Score Problem

Here's an email I recently received from a reader:

I recently found on a copy of my credit report that my Citi PremierPass card isn't reporting properly. Even though I have a $2700 revolving credit line, it reports as $1500 (I have a $1400 balance right now, but it will be around $800 next week). So it looks like I am almost maxed out, which I'm not -- after numerous calls to Citi, I have learned that my card doesn't actually have a limit, so it reports whatever it wants to. Which doesn't make much sense -- I can't quite get an answer about why it reports $1500 when my balance is $1400...but whatever.

Anyway, Citi can't "transfer" my account to a new card product. They told me I have to cancel this card, and reapply, which will take down my score even more. If I close this and try to open a new one, my score will go down. If I keep this open, my score won't get any better. I am really concerned about what to do, and am concerned that I won't even be approved for a new card if I close this one down, due to the 100 or so points I've lost JUST because of my card looking like its near maxed out on my report. There is NO WAY they will report my credit line on this PremierPass card, because there isn't one.

All said and done, I've had enough issues with Citi to pursue a different company...but it seems that no matter what move I make, I am going to hurt my credit score. What's the fastest way to repair my score? This is the ONLY issue on my credit report -- and this is my ONLY credit card.

What do I do?

Any thoughts for her?

Comments

[Strick]

I had the same issue with my Chase card. Because I'm debt free and I like to keep only one credit card open (I'm all about simplicity), the no spending limit thing did really affect my score (which I wouldn't care about except I do a lot of contract jobs and the potential employers are often pulling my score). I told Chase to change mine to a set credit line (at a level more than 4 times what I spend on it in a month) and they did.

If Citi won't do that, all you need to do is work on paying down your $800 balance to about $400 or less by the next statement date or two (its usually the statement amount that gets reported to the agencies, the oddity that led to why I was close to being "maxed out" even though I paid off my balance every month). At that point you're using less than a third of your available credit and, if that is the only thing that was keeping your score down, it should jump back up and you can just go with someone else. Unless you're trying to get a big loan in the next month or so, just do this and don't worry about it.

[Travis W.]

To be honest don't agonize over this as this is only one of many factors involved in your credit score. If your credit is good, or at least decent, I can't imagine you losing 100 points based on this alone.

That being said I would suggest just putting the Citicard on the back burner, opening a new card and then after a year or two close the city card. I have three CC cards, all paid off every month, and have a score of 785 and this is one technique that I have used in the past. This allows you to keep the card and the history associated with it while building up history on the new card and upping your available vs. used credit.

In reality if you do the right things, on-time payments for all bills, continuing credit history w/CCs, keep your debt debt to a minimum i.e. loans etc, and monitor your credit report each year for errors then the score will take care of itself.

[Mr. ToughMoneyLove]

Frankly, this scenario is precisely why you should do what is best for you (lay off the cards) and not obsess with your credit score. If you think that you can stay ahead of the credit score curve (which is a constantly moving target) by manipulating card balances, you are deluding yourself. Pay off the card, put it away until you can use it without carrying a balance, generally avoid consumer credit, enjoy life, and stop wasting your time and energy trying to please FICO.

[Matt]

In the bigger picture, how does your credit score look to begin with? If this is going to have a drastic effect, think about it, if not, giver.

[C.J.]

Dave Ramsey says, "What is FICO and what is credit?"

[Poster]

My credit card is now 100% paid off -- I have a 0 balance on this Citi card -- I appreciate the "don't agonize" but I am only 24, so I feel like I don't have enough of a history to be choosy about what to improve on my report. I plan to make a few purchases with my Citi card and pay it off 100% each month, but how does that show up on my report?

My credit score right now is about 698. I was told it would jump 15-20 points if I could just work out the Citi balance...I am just wondering what it will look like now that I have a $0 balance. I also paid off my entire student loan this month...so I am hoping that helps.

I never had a spending problem and have only carried a balance for a few months -- there is just all of this credit score obsession and to me, 698 is pretty awful. That's the lowest my score has ever been.

[Michael]

To those who are buying into the spiel of the self-righteous "forget about your credit score" and "forget credit cards" folks...

We are in the process of buying a house (closing on the 25th). You need a good credit score to get the best rate on a mortgage. Our credit scores were both in the 750 range, which means that we got the second tier mortgage rate. If we had had over 800 scores, we would've gotten the best rate available.

The interest difference between 4.55% and 4.85% on a 30 year mortgage is not a trivial amount of money, and goes to show what a credit score can do.

That said...once we close on the house, our credit score won't matter much to us anymore. We won't need any more loans (hopefully forever) and will be paying off our car, school and mortgage loans.

[Kimberly]

I would find a different card that does not report that way and start using that while putting the Citi PremierPass away for a while. Only do this if you commit to paying off your balance every month, and the interest rate you get won't matter.

I think the best thing for your credit score right now is time.

[Marc B]

Your credit score is made of five main items: Debt ratio, credit history, age of credit file, credit mix and number of inquiries.

Debt ratio - this is your biggest concern. This number is derived from the amount of credit you are using divided by the amount of credit offered to you. For example, if you have three credit cards with a total combined credit limit of $20,000 and you have $5,000 in outstanding balances, you have a 25% debt ratio. If you transfer balances from one card to another and close one of the cards (let's say that card has a $5,000 credit limit), you haven't changed your overall debt, but you have done damage to your debt ratio. Your ratio is now $5,000/$15,000 = 33%, thereby hurting your score. In your case, if there is no annual fee to factor into the equation, your best bet is to open a new credit card and do not close the Citi card. By doing so, you will actually help your debt ratio because you will now have more credit in your name with the same amount of debt.

Opening a new credit card also helps your credit mix. A healthy mix of credit (three credit cards, a mortgage and a car loan for example) will help increase your scores....as long as everything is paid on time and is in good standing.

I would also like to address all those nay-sayers out there who say not to worry about your credit score. That is the absolute worst advice anyone could ever give you! So many things are affected by your credit score: mortgage rates, auto loan rates and auto insurance premium just to name a few. Why do you think employers check your credit report before they hire you? If you are a renter, landlords will also check your credit report. Do you really want to pay higher premiums, higher interest rates, run the risk of not getting a job or getting an apartment?

Repairing and maintaining your credit is relatively simple. There are a million ways to help your credit score. EVERYONE should be interested in their credit scores.

[Poster]

This is a part of my problem: this Citi card is my ONLY credit card. I am adverse to credit cards. I use this one and *usually* pay it off monthly -- sadly my timing sucks and as I was carrying a balance, I needed a credit check, and had a crappy score because it didn't report a limit. A positive about this card is that I've had the account open for almost 2 years (not long, I know, but long enough) and my APR is only 2%

As for debt, I only have a car payment ($13K remains) and this credit card. I just paid off my student loan last week. I don't have any other debt...but it says that one of the negative aspects on my report is "history" -- my first account was in like 2002 or something, which isn't that long ago.

I will give a month or two for my score to improve (due to student loan payoff and no carried balance on my CC) and open a new card.

[mgs]

This is because your Citi PremierPass is a World MasterCard, which is one level higher than Platinum MasterCard. Just like Signature Visa, almost all World MasterCard and World Elite MasterCard don't report the credit line because they do not have one. Some of them simply report $0, and it happened to my Citi PremierPass World Elite MasterCard although it has $20K credit limit. Sometimes, they use your highest balance in the account history as creidt limit, and it happened to my FIA Fedility Signature Visa. my credit report shows a credit limit of $7482 although its line is more than $25K.
So, I guess maybe your highest balance of your card was $1500. Is that true?

[Mr. ToughMoneyLove]

Dear Marc B and others: The credit score is controlling your life because you allow it to. Listen to yourselves - "go get more credit cards to manipulate your credit score so that employers, landlords, and insurance companies will think you are a better person."

Truth or not, can you not see how pathetic such a system is? If you are an employer (as I am), is this how you want to measure the worth of a job applicant? By how clever he or she is in playing the FICO game? And if you do not use credit (and therefore have no credit score at all), that makes you the worst kind of person in such a system. Sad.

My advice is to live a financially responsible life, build wealth, and find service providers who respect those values. They are out there.

[Michael]

Does it matter? The banks are getting OUR money to bail them out and we as "owners" are paying more. They will screw you anyway they can.

[Tinman]

Kudos on paying off your student loan and the balance on your credit card! Haven't quite figured out why you needed a $13K vehicle as a student? Please concentrate on paying that loan down before you aquire any more large debt. To get to your original conundrum, you may want to send a letter explaining the situation as you first described to the credit agencies to be included in your credit report. You are entitled to do this. You should have an overall plan in mind to manage and use credit. Aquiring and managing credit resources is a part of being a responsible adult and it looks like you are on your way to that goal. The best to you!

[Poster]

I actually bought the vehicle after I graduated (I didn't have a car in college!). I put $10K down on my new (used) car, so my payments are under $300 per month...maybe a stupid decision but I got a decent job out of college, and I bought a car I've wanted FOREVER.

I actually already wrote two letters to the bureau -- AND received responses, as the letter(s) were forwarded to Citi. That's how all of this came to be. I tried to dispute it, and they said "that's the way it is."

I'll do as suggested and put this card on the back burner. Thanks so much for all the info.

[Marc B]

Mr. ToughMoneyLove -

Let me start out by saying that I do agree that your credit score it is a silly game. Would I feel that a person is less of an employee because they had some issues in the past? No. In a perfect world, this game would not need to be played. However, we do not live in that world. As Michael said about his interest rate on his home, he could have gotten a 0.30% better interest rate if he had a better score. Compound that over 30 years and it equates to tens of thousands of dollars (depending on the cost of his mortgage). If you ask me if I would play the game in order to save that much money, my answer everytime will be, "You bet!"

I've worked in the mortgage industry and the credit industry. The sad reality is that in order to get a home and get a good interest rate, you NEED good credit scores.

[Ken]

You're getting hit for having the 93% debt ratio (1400/1500), short credit history (less than 2 years with the card) and small number of credit lines. Basically "maxed out" credit in a short period of time. Now that you've paid off your balance your score should go up a bit.

My advice would be to keep the card and apply for another. You're credit score will take a hit of about 5 points but that will come back up in about 6 months. Use the new card exclusively and put the other one away.

This should boost your score overall by giving you an even better debt ratio and increase your credit history. If you get another card now your average age of credit cards will not get hurt because it's less than two years already.

If you pay your balance off and on time you should see a nice increase in your credit score in 6 months to a year.

I'd recommend the Citi Forward card even though your unhappy with their current card. It pays rewards for Books (anything at Amazon.com), restaraunts. Perfect for a student. Once you charge $50 and sign up for paperless statements they'll give you 11,000 "thank you" points that can be converted to $100 in gift certificates. They give you 100 points every month for paying on-time and staying under your limit.

Boost your credit score and make $100 right off the bat. Not a bad deal in my opinion.

[C.J.]

If you had cash to pay for a home, you wouldn't need a good interest rate for a home. Have fun living the credit life.

[John]

Hey Mr. Wizard and his Daddy's trust fund showed up.

[C.J.]

Hey someone with bankruptcy in the near future showed up too.