CRAs Sued Over Practices That Lower Consumer Credit Scores
Information ACCESS - Vol. 1, No. 2, July 6, 2006
A member services publication of American Consumer Credit Education Support Services - www.guardmycreditfile.org
June 30, 2006 - Attorneys for William A. Harris Sr., a resident of South Carolina, have filed a class action law suit against the nation's three large credit reporting agencies; Experian, Trans Union and Equifax. Harris is claiming that these three companies are violating the Fair Credit Reporting Act (FCRA), which requires them to establish reasonable business procedures to insure that the credit reports that they provide are accurate. Harris's suit says that because the CRAs allow creditors to omit the credit limit on consumer accounts, they are artificially holding down consumer credit scores, bilking American's out of billions of dollars each year in the form of higher interest rates.
Harris's claim is based on the way that credit scores are determined. The nation's larges credit score system is Fair Isaac's FICO score. Fair Isaac looks at a number of factors in determining an individual credit score. Among these are how much available credit a person has, and how much of that credit is actually utilized.
When a creditor doesn't report the overall credit limit on an account, Fair Isaac will use the highest balance ever reported on the account to in place of the credit limit. For instance, if you had a credit card with a $10,000 credit limit but the maximum amount that you had ever charged on it was $2,000, your credit utilization would be 20%. But if the creditor didn't report the credit limit on the account, and your current balance was $2,000, it would look like your credit utilization was 100%. This would lower your credit score.
The lower your credit score, the higher the interest rates that you have to pay on mortgages and other loans. This can actually amount to thousands of dollars in add ional interest charges each year. In the case of a mortgage, it can amount to tens of thousands of dollars over the life of a loan.
Harris had a credit card through Capital One; a company that refuses to provide the CRAs with the credit limits of its customers. Harris's suit says that Capital One's "standard policy of not reporting has a substantial adverse impact on consumers. It makes it appear that many, if not most, Capital One credit card customers have used up more of their available credit than is actually the case, thereby lowering their credit scores."
Because the CRAs are aware of the impact of creditor's withholding credit limits, Harris is claiming that they have violated the FCRA's requirements on accurate data gathering and reporting. His claim appears to be very reasonable given that a study by the Federal Reserve Board two years ago which used a random consumer sample found that 46% of consumers had at least one creditor that didn't report credit limits.
A member services publication of American Consumer Credit Education Support Services - www.guardmycreditfile.org
June 30, 2006 - Attorneys for William A. Harris Sr., a resident of South Carolina, have filed a class action law suit against the nation's three large credit reporting agencies; Experian, Trans Union and Equifax. Harris is claiming that these three companies are violating the Fair Credit Reporting Act (FCRA), which requires them to establish reasonable business procedures to insure that the credit reports that they provide are accurate. Harris's suit says that because the CRAs allow creditors to omit the credit limit on consumer accounts, they are artificially holding down consumer credit scores, bilking American's out of billions of dollars each year in the form of higher interest rates.
Harris's claim is based on the way that credit scores are determined. The nation's larges credit score system is Fair Isaac's FICO score. Fair Isaac looks at a number of factors in determining an individual credit score. Among these are how much available credit a person has, and how much of that credit is actually utilized.
When a creditor doesn't report the overall credit limit on an account, Fair Isaac will use the highest balance ever reported on the account to in place of the credit limit. For instance, if you had a credit card with a $10,000 credit limit but the maximum amount that you had ever charged on it was $2,000, your credit utilization would be 20%. But if the creditor didn't report the credit limit on the account, and your current balance was $2,000, it would look like your credit utilization was 100%. This would lower your credit score.
The lower your credit score, the higher the interest rates that you have to pay on mortgages and other loans. This can actually amount to thousands of dollars in add ional interest charges each year. In the case of a mortgage, it can amount to tens of thousands of dollars over the life of a loan.
Harris had a credit card through Capital One; a company that refuses to provide the CRAs with the credit limits of its customers. Harris's suit says that Capital One's "standard policy of not reporting has a substantial adverse impact on consumers. It makes it appear that many, if not most, Capital One credit card customers have used up more of their available credit than is actually the case, thereby lowering their credit scores."
Because the CRAs are aware of the impact of creditor's withholding credit limits, Harris is claiming that they have violated the FCRA's requirements on accurate data gathering and reporting. His claim appears to be very reasonable given that a study by the Federal Reserve Board two years ago which used a random consumer sample found that 46% of consumers had at least one creditor that didn't report credit limits.
