Friday, March 13
Posted 2 p.m.
FICO scores hold despite credit limit cuts
Bankrate reporter Leslie McFadden contributed this entry.
Fair Isaac Corp., now called FICO, told Bankrate in December that the company
was looking at the impact that lenders' account closures and credit limit reductions
had on scores. Here's the update.
"What we found is, yes, lenders are increasing the number of folks who
are getting credit line decreases and accounts closed, but in general, in terms
of the total national population, their score distributions are holding pretty
steady," says Careen Foster, director of scoring product management for
"Some consumers are getting some score decreases as a function of lender
actions," she says, but contends that many consumers are cutting back card
usage to compensate, and their scores are instead improving.
Those who don't rein in spending are more likely to see an impact to their score,
She brings up a good point. If your limit gets cut, reduce the balance and
curtail new purchases to minimize injury to your score. The good news is that
unlike a delinquency, the score can recover more easily.
FICO has no plans at the moment to change the way that utilization -- a major
component of the score that considers balances owed compared with available
credit -- is calculated, not even to offset score damage from account closures
and credit limit reductions. "If it looks like it doesn't make sense to
treat utilization the way we do, then we will monitor and evaluate that,"
Foster says. "At this point our analysis so far suggests that in general
there isn't a very large impact on consumers,"
These credit line reductions aren't happening to a handful of people, though.
In January, the Federal Reserve Board's senior loan officer survey reported
that around 45 percent of domestic banks reduced credit limits for new or existing
These lower limits increase utilization through no fault of the cardholder,
hurting the score and scaling back access to credit. A falling credit score
can even trigger adverse actions from other creditors. In the process, lenders
can artificially create a riskier borrower.
FICO is turning a cold shoulder to folks whose scores drop when issuers make
skittish changes to their account. If my reader e-mails are any indication,
consumers won't soon forget this apathy.
New score trends service: In other news, yesterday FICO launched FICO Score
Trends, a subscription service for businesses that will deliver score patterns,
broken down by criteria such as type of credit, time period, new versus established
accounts, geography and industry. The data spans from October 2005 to October
2008, and the company will add new information at six-month intervals, according
She says the tool will help lenders compare trends in their portfolio against
regional, as well as national trends.
The scoring model used will be the Equifax BEACON 5.0 score. Foster said the
company will input BEACON 09, based off the "FICO 08" scoring model,
into the trending service "probably" within the next six to 12 months.
Consumers, meanwhile, will not be able to purchase the FICO 08 version of their
scores for some time.
My concern with the trending service is that it would enable issuers to punish
borrowers in certain industries and locations based on score trends. Foster
says she couldn't speak to how lenders might use the information to make lending
decisions, and countered that the tool allows lenders to monitor rebounding
markets through score improvement.
"What we're offering is a view into how different markets are performing
and it's up to the lender to decide what to do with that."
What do you think about the service?
Comments? Questions? E-mail Plastic_Rap@Bankrate.com.