Credit Card Policy May Hurt Your Score
I understand that when my credit score is calculated, one factor that's considered is my balance as a percentage of my credit limit. But my credit-card issuer, Capital One, does not report credit limits to the credit bureaus, so they show a limit of $0 on my report. Can I do something to get around this policy and improve my score?
All Capital One customers should be as informed as you are about the company's policy. Capital One doesn't report its customers' credit limits because "we have always considered that a proprietary, competitive part of our business," says spokeswoman Diana Don.
But that policy can hurt your credit score. You're correct that when Fair Isaac compiles its so-called FICO scores, the company factors in what percentage of your credit limit you've actually used. The lower your "utilization ratio," the better. In the absence of a credit limit, the FICO system substitutes the highest reported balance from that credit, explains Craig Watts, of Fair Isaac.
Unfortunately, that means good payment habits on your account could accidentally result in a lower score. Let's say your credit limit is $10,000, but you've never owned more than $1,000 and you typically pay your bill in full each month. Then you charge $500. "It looks like you're using 50% of your total credit available, even though your actual limit is much higher," says Gerri Detweiler, of EverydayWealth.com. It's usually best to keep your utilization ratio to 25% or less when you're about to apply for a loan.
If you're planning to borrow money for a house or car, one way to keep your credit score high is to make a big purchase on your Capital One card at least six months before you plan to take out the loan. That would boost your highest balance and improve your utilization ratio -- provided you paid the bill in full before any interest was due, and long before you apply for the loan.
An even easier solution before you apply for a big loan: Use the card of a different issuer, almost all of which do report credit limits. Capital One is a major player, but "this isn't even remotely an issue for most credit-card users," says Watts. To check on whether your issuer reports credit limits (and whether they're accurate), get a free copy of your credit report at AnnualCreditReport.com.
For more information about improving your credit score, see Demystifying Your Credit Score.
Got a question? Ask Kim at firstname.lastname@example.org.