Recently, many consumers have experienced their
credit card company decreased their credit line.
Credit card profits are being squeezed by rising
defaults and waning spending. As a result, issuers
are tightening the screws on consumers.
According to a report by NBC4 TV in Washington,
DC, the drop in available credit lowers their credit
scores and is affecting almost everything.
Credit expert Evan Hendricks, author of credit
scores and credit reports, told NBC4 TV that it’s
happening to many consumers.
There's been a whole surge going through the credit
card industry of dropping people's credit limits,
and sometime very dramatically. It affects exactly
how much you're going to pay out of pocket in interest,
if you can get the loan at all.
Hendricks says few consumers know how credit scores
are even calculated. He says the precise formulas
are kept top-secret, but generally, payment history
makes up 35%... Indebtedness makes up 30%, credit
history makes up 15%, type of credit...meaning bank
mortgage versus finance company, makes up 10%, and
credit inquiries you initiate makes the final 10%,
reported NBC4 TV.
Credit score translates into real dollars. Take
a couple who want to buy a house
If the couple takes out a three hundred thousand
dollar loan for thirty years, with a 720 credit
score, they could qualify for a 4.8% interest rate.
But if their credit scores is 650, they would pay
6.6%. That higher interest rate costs the couple
four thousand more a year and one-hundred twenty
thousand dollars over the loan's lifetime and $120-thousand
dollars over the loan's lifetime.
Now you can boost your credit score but it takes
time and effort. Pay bills on time. Keep credit
card balances low. Pay down debt. If you miss a
payment, get current quickly. And a surprising one.
Don't close existing credit card accounts. That
lowers you credit limit and shortens your credit
history, reported NBC4 TV.
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