Why should you care? Well if you have a capital one credit card you should definitely care because this adversely affects your FICO score (which leads to a higher interest rate for any loans you get). One of the factors affecting your FICO score is what percentage of your available credit you use. Since the true limit is not available, the maximum charged is used instead.
Ex. Let's say for shits and giggles that you have a credit limit of $20,000. But the most you have ever charged in one month is $4,000. This means that by using your $4,000 instead of your true limit, every $1 you spend is treated as being 5x more of your available credit than it actually is.
Worse yet would be if you never had a month in which you charged a large amount. This would mean that you consistently charged a high percentage of your maximum amount and thus looked as a really bad risk to creditors. As an example stated in this article [http://www.washingtonpost.com/wp-dyn/content/article/2006/06/30/AR2006063000609.html] an 80% utilization ratio could mean a 50 point drop in your FICO score. Which would then result in a 1% increase in your mortgage rate.
There is currently a class action lawsuit against the three national credit bureaus since they must, by law, strive for accuracy in their reportings. Unfortunately, capital one cannot be sued because they are not by law required to report limits. They, in fact, do not report limits as company policy because it makes its customers appear to be worse credit risks so other credit card companies will not try to steal them away.
I suggest everyone w/ a capital one card stops using it (don't cancel it as that would not be good on your report either). Simply go get another card that does report limits (my citibank card does) and call Capital one and let them know you won't be using their card anymore because you don't appreciate the way they treat their customers...
[gets down off his high horse...]
4 comments:
Great information Jae...I will take your advice...pay off Capital One...and only use my Chase or SunTrust. Thanks for the tip!
Isnt it true that having multiple credit cards hurts your rating as well. I have 2 right now including capital one. I suppose I could just use my one but for some reason i would prefer two. Because I really want to cancel it now or stop using per jae's research. Anybody have any knowledge if it would be better to have 3 credit cards while not using one (capital one) or canceling it only having 2.
Shit...how long do closed credit cards stay on your report. I guess signing up for like 5 credit cards my freshmen year of college to get all the free CRAP they gave with them was not he best idea. Assholes taking advantage of poor college kids with cool shirts/gifts. They have been closed for 6 years now so I would hope it doesnt affect my score anymore.
The more credit cards is worse is true over a certain limit. I think 2 is probably the right number. If the limit on your other card is good enough, just use that one and don't close the capital one card.
If you want to know for sure if your other 500 credit cards show up go to www.annualcreditreport.com and get your free (really free) credit report. You are allowed to do this once per year from each of the 3 national credit bureaus.
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