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Published:September 10th, 2010 15:54 EST
A Dirty Little Secret that Is Hurting Your Credit Score

A Dirty Little Secret that Is Hurting Your Credit Score

By Philip Tirone

You probably know that foreclosures, bankruptcies, collections, and repossession will hurt your credit score. But there`s a dirty little secret that credit card companies don`t want you to know about their policies.

Credit card companies often inaccurately report credit card limits to the credit-scoring bureaus "or they intentionally omit credit card limits. Either way, this causes your credit score to drop. In fact, failing to correct this error is one of the
ten biggest credit mistakes to avoid.

Unfortunately, this happens to people all of the time! Almost half of all consumers have a credit card report with an omitted limit or a limit that is being reported as lower than it actually is.

Either way, this hurts your credit score because it causes your balance-to-limit ratio to appear higher than it actually is. It works like this: a big part of your credit score is based on the amount of money you owe, including something called a utilization rate. " A utilization rate reflects your balance as a percentage of your limit.

Let`s say that your limit is $2000. If your balance is $500, your utilization rate is 25 percent. If your balance increases to $1000, your utilization rate increases to 50 percent, meaning that you are utilizing half of your available limit.

All other things equal, the credit bureaus will give a higher score to someone with a lower utilization rate. Having a utilization rate that is higher than 30 percent will hurt your credit score.

So let`s take a look at what happens if your credit card company is giving the credit bureaus the wrong information. Imagine that you have a credit card with a limit of $2000. Your balance is $500, so your utilization rate is 25 percent. This is good news for your credit score, right?

Unfortunately, the credit card company is telling the credit bureaus that your limit is only $1000. Of course, they are reporting the correct balance of $500. This means that you appear to have a 50 percent utilization rate. And this hurts your credit score.

So what should you do if you are a victim of this scam? Take the following steps:

1. Pull your credit report from
2. If the credit card companies are inaccurately reporting any credit limit of yours, immediately begin the process of correcting this mistake. You can do this on your own, or you can use the forms and worksheets available in 
7 Steps to a 720 Credit Score.

Philip Tirone is the author of 7 Steps to a 720 Credit Score. His
free teleseminar helps people whose credit scores have been hurt, either because of past behavior or because of bank scams.