I was going to write a “do these 5 things before the end of the year” article for this week but I’m sure you’re being overrun with those right now. So, in lieu of “piling on,” I figured I’d give you something more practical and something that can save you a boatload of money. Before you fill out your next job, credit or insurance application, be sure to ask the appropriate questions from this list.
“Mr. Credit Card Issuer, do you report credit limits to the credit bureaus?”
Missing credit limits can lead to lower credit scores and some credit card issuers do not report your credit limits. The problem used to be much worse years ago, when Capital One used to withhold credit limits on their accounts. They started reporting limits in 2007 and have largely been forgiven for withholding the important data. There are, however, still some cards where limits won’t be reported. The so-called “no limit” cards don’t report limits and charge cards don’t report limits.
This is important because the credit limit (as reported on your credit file) is denominator in the “revolving debt utilization” calculation. And, if it’s missing, the “highest balance ever” figure is used in lieu of the limit. If the highest balance ever figure isn’t as high as the credit limit, and it generally isn’t unless you’ve maxed out your card, then your utilization percentage will be higher, and your credit score could be lower. So, asking the question up front could save your scores. Here’s a really damaging example…
Credit Limit – $10,000
High Balance – $1,000
Current Balance – $900
In that example the REAL utilization is 9% ($900/$10,000), not bad at all. But, if that limit were missing then the utilization would be 90% ($900/$1,000), which is terrible. This measurement is taken on a line item (card by card) basis AND an aggregate (all cards) basis, so there’s no escaping the damage.
“Mr. Employer, do you review credit reports when you screen potential employees?”
Employers are allowed, in most states, to review your credit reports as part of employment screening. They’re required by law to get your permission to do so. It still is a good idea to ask up front if they intend to do so.
Millions of American’s credit is in the tank these days: 35% of the population has FICO scores under 650 and while scores are NOT used by employers (reports yes, scores no), the data underlying a 650 (and below) score isn’t flattering, which means that 35% of the population has poor credit. The worst thing that could happen would be to not get a job, or waste time and energy pursuing one, if your credit is going to disqualify you for consideration.
Knowing in advance will give you the opportunity to work on your explanation. And, if your report contains damaging errors, it will give you time to get them corrected. And if the company is hiring for multiple positions, it might even allow you to choose a role that is “credit free.”
“Mr. Lender (or Insurance Company), which credit bureau do you use?”
Why would you want to know this before you applied for a loan or insurance? The answer is very simple: strategic applying. If you knew that your FICO score from Equifax was 700 and your FICO score from TransUnion was 645, and you knew the lender used TransUnion for their credit reports… wouldn’t you want to maybe find a lender who used Equifax?
You would be more likely to get approved, and more likely to get approved with better terms. Many consumers assume that lenders won’t tell them what credit bureau they use. Some don’t, but some do. It’s not a matter of national security for Joe’s Bank to tell you that they use Equifax for their credit reports. They might even tell you what minimum score they require to approve the type of loan you’re interested in. Arming yourself with this information can save you the embarrassment of a denial AND the potential damage of the wasted credit inquiry.
“Mr. Lender, what score exactly are you using?”
This is different than knowing what minimum score your lender requires for an approval. This is finding out what VERSION of score they’re using. There are many different versions of the FICO scoring software and not all lenders are using the most current version, to your detriment.
The newest version of the FICO score is still called, unofficially, FICO08. This version does NOT count collections that have an original balance of less than $100. This version also scores low risk consumers higher than older versions. Point being, if you’re a good borrower, you REALLY want your lender to use the 08 version.
You can’t force your lender to use this version and the entire mortgage industry is still years behind when it comes to adopting newer scoring models. Fannie Mae and Freddie Mac (that’s about 70% of all mortgages today) are still using older, much older, versions that were built well before the credit crisis. There are lenders who are using current scoring versions and you should take your business to them.
“Mr. Lender (or Insurance Company), what is the minimum score required to get approved at the best rate?”
In July 2011, the FACS (Fair Access to Credit Scores) Act goes into affect. And boy, oh boy, am I counting the days! This law requires lenders and insurance companies and anyone else who uses a credit score to make a decision about you, to give you, for free, the actual score they used if they declined you.
This will lead to a new era of score transparency. Within a few months we should have enough data to put together tables for every lender and insurance company that answers the above question. If XYZ Bank declines you at 647, it won’t be a secret any longer. Point being, we’ll be able to cobble together a really good understanding of minimum score requirements.
So don’t be shy the next time you’re about to fill out that application. Asking one or two questions can save you money on a loan, save you some embarrassment and make you sound like a well-informed consumer.
John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and the author of the “credit history” definition on Wikipedia. He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. He has served as a credit expert witness in more than 70 cases and has been qualified to testify in both Federal and State court on the topic of consumer credit.