Capital One’s advertising campaign did ask a great question. Using a Capital One credit card used to insure that there would be less money in your wallet. After years of stalling and excuses, Capital One has finally agreed to start reporting their customers’ credit limits to the three major credit rating bureaus.
This is an important development and could save many Capital One customers thousands of dollars in the future. This development is more important than ever with credit tightening in the mortgage market and FICO scores are becoming even more important. I also wonder if it is because Capital One is also aggressively hawking mortgages now too?
Capital One used to only report the highest credit balance carried to the credit reporting agencies which often times resulted in a negative affect on their customer’s credit rating. One of the major factors that goes into your credit score is your utilization of revolving credit ratio. For example, if you have a credit limit of $10,000 and carry a credit card balance of $1,000 you have a very low credit utilization ratio which is very positive for your credit score. In other words, you have only used a small portion of the revolving credit available to you.
On the other hand, Capital One would only report that you carried a $1,000 credit balance instead of informing the bureaus that your credit limit was actually $10,000. So instead of the credit bureaus rating your credit history with you only utilizing 10% of your available credit, it would appear you are using 100% of your available credit giving the false impression that you are maxed out with revolving debt.
This little technicality in reporting methods could cost Capital One clients 50-100 points on their FICO scores which ultimately translated into higher mortgage rates for Capital One card holders. For example, if you really should have had a 720 FICO score, being a Capital One cardholder could have made your FICO score less than 680 which can make a huge difference in the mortgage rates that you would be offered.
The credit bureaus sell credit ratings and other data to competiting credit card companies. By hiding the credit limits, Capital One made it harder for their competitors to poach their best customers. However, in doing so, they also penalized their best customers.
Nevertheless, when it comes to credit cards, it is always best to scrutinize what is in your wallet.
Customer satisfaction is something that one cannot ignore. So, what happened to Capital One credit card holders is lesson for one and all – both the consumers and the credit card companies out there.
To make a 720 something score come down to 680 just because of the way it is reported to the bureaus is really frustrating for home buyers and mortgage seekers. Isn’t there any specific way out to report the exact consumer credit data to the bureaus or is it time for another law in the making?
So, Capital One is finally changing this policy—is this reason to celebrate? For many years, consumers having been paying the price for Capital One’s aggressive marketing and consumer index models. I don’t understand how anyone could trust a company that intentionally brought harm to their card holders.
Maybe I am a skeptic, but I truly believe that IF Capital One is changing this policy, they have another one up their sleeve that is just as insidious.
We as consumers have a choice. Why would we CHOOSE to remain loyal to a company that has intentionally tried to screw us over?
Think about it…
It is good they changed the policy. However, consumers need to be more critical of the companies they choose to patronize. Credit card companies aren’t known for being consumer friendly, so I don’t think anyone should be surprised.
Whenever a credit company try to screw me, I always put some complain. If they should force me further, I would follow their game as always, but always cancel the cards not long after. Credit cards with no sense of safety and security aren’t not worth the trouble and the charges.