The Motley Fool: "Credit Cards Sabotaging Mortgages"

Having watched the PBS Frontline investigation on which the New York Times article I blogged on was based, I'm even less impressed with the lack of ethics - lack of a conscience, really - displayed by the credit card companies. Their mercenary, anti-consumer practices are allowed by regulatory agencies to continue because our current economic recovery, and indeed the entire modern American economy, depends on easy access to credit. It would be political suicide to take on these companies before the outcry from citizens becomes much louder than it is.

Now there's this little morsel from The Motley Fool, a down-to-earth financial web site, about how 46% of cardholders are having their credit ratings artificially damaged so their banks can keep a "competitive" edge:

Unbeknownst to you, while you innocently trot your respectable credit score around to lenders as you shop for a mortgage or car loan, your credit card companies may be mucking things up. Here's what's going on: A study by the Federal Reserve Board has found that some credit card companies are failing to report your credit limit to the credit bureaus that maintain your credit history and credit score -- and missing credit limits can often affect the interest rates you're offered when you need to borrow money.

Why would they do such a seemingly harmless thing? For competitive reasons. They don't want you to get 'poached' by other credit card companies that routinely scan the system, looking for folks with certain characteristics. When your credit limit is omitted, your information is incomplete, and your score is lower than it otherwise would be, through no fault of your own....

In a recent article, columnist Ken Harney offered some frightening details: 'According to Fair Isaac, a 677 FICO score in today's market would qualify a borrower for a 6.23% 30-year fixed rate on a $150,000 home loan. A 30-point drop in that score because of non-reporting of credit limits would push the best rate available to 7.38%. Monthly principal and interest to the applicant with the artificially depressed score would be $115 a month higher than it should be.' That's $1,380 per year in unnecessary payments -- ouch.

Your best move - read the TMF article and then follow their advice for checking your credit report and dealing with your bank if they're pulling this trick on you. This is no small deal - in the example above, the bank's choice to protect itself from "poachers" comes at a cost of $41,400 to the customer!