How far can your credit score plummet when your credit card issuer withholds your credit limit in its reports to the three national bureaus? And how costly could that be when you apply for a home mortgage?



The answer to both questions: A lot more than you might suspect. Let's say you have what is known in the mortgage industry as a "thin file" -- a relatively small number of banking accounts on file, including only one credit card.

Let's say your card history extends back more than a decade with no late payments. Let's say you have an account carrying a generous $5,000 limit with a zero balance. So far, so good. However, your credit card company never reported either that important piece of information or your highest balance. Now, you have your credit report pulled to apply for a mortgage thinking "all's well". Just that small item alone combined with your history of on-time payments, should have boosted credit scores significantly.

But the card company's failure to report the credit limit or highest balance -- both crucial factors in computing the FICO scores that most mortgage lenders use to evaluate applicants and set interest rates can knock dozens of points off your score.

Think it doesn't matter? Or it can't be that bad? Consider this. If the best interest rate for your choice of mortgage requires a FICO score of 620 and you are the subject of the above scenario and your score plummets a mere 25 points...you are now a SUB-PRIME borrower!

You're now subject to higher interest rates, increased down payments, higher fees, awful terms, prepayment penalties and higher mortgage payments. Those extra expenses would not have been caused by anything you did wrong, but rather by what the card company does without your knowledge: keeping your good credit behavior a secret from potential competitors by withholding your credit limit and highest balance, thereby decreasing your credit score. Credit card companies sometimes try to hide their best customers' identities from other lenders trolling the credit bureaus' vast databases to prescreen targets for card offers. Typically the trollers ask the bureaus for lists of cardholders with higher scores, and avoid those with marginal or lower scores.

Home buyers with thin credit files -- typically younger households or minority group members who have not made extensive use of the credit system -- are the most vulnerable to this abuse, but are hardly the only victims.

Several of the biggest card issuers report all customers' account limits and highest balances to the three national bureaus -- Equifax, Experian and TransUnion. Only Capital One Financial said it withholds limits as a matter of policy. However, credit industry researchers, including CreditXpert, say they routinely see consumer files with account limits missing or withheld, including from card issuers whose publicly stated policies are to the contrary.

What can individual consumers do about flagrant nonreporting of limits by card companies that depress their scores and raise interest charges on home mortgages? Tops on the list: Get copies of your three bureau reports and check whether your card issuers are reporting fully. If you find they are not, complain bitterly, especially if you stake a lot of your personal credit history on your good behavior with their cards.

Then, if a card company refuses to report your credit limit, end the relationship. Transfer your balances to a company that will treat you as you deserve.

Want to learn how to "estimate" your FICO score? Click on this link to find out: http://www.myfico.com/FICOCreditScoreEstimator/Default.aspx