Triggers other than a late payement triggers Universal Default.

October 4, 2005 12:25 PM

Universal Default. Late payment isn't the only criteria that can activate a rate hike. Among others are: Worsening credit score; Car loan inquiry; Too much available credit. What are the black and white rules for these?

"According to customer service representatives, the following circumstances, in descending order of importance, can trigger a universal default rate hike:

* Credit score gets worse: 90%
* Paying mortgage, car loan or other credit obligations late: 86%
* Going over credit limit: 57%
* Bouncing a payment check: 52%
* Too much debt: 43%
* Too much available credit: 33%
* Getting a new credit card: 33%
* Inquiring about a car loan or mortgage: 24%"

I want to know exactly what "they're" defining as "worse" "too much". Some of these are benign and I'm surprised they are included (If I don't use a credit card for 6 months that can lower my score; Inquiring about a car loan, WTF?) I'm also surprised the local media mentions only the "late payment" scenario for raising rates.

posted by Feisty to Work & Money (6 answers total)

"Too much" depends on buying patterns and income. Inquiring about a car loan indicates you could be taking on more of a credit burden and therefore less likely to keep making payments on time. Too much available credit leaves you vulnerable to large impulse purchases that you are not using to making payments on. That's easy enough to see.

Credit is evil, in most cases. It's the devil's money. I have one credit card with a zero balance and they keep raising my credit limit. I feel dirty every time I touch it.
posted by letterneversent at 12:31 PM on October 4, 2005

They won't tell you exactly what they're defining as worse, and too much. They probably can't tell you because there probably isn't a simple answer. Credit card interest rates are a measure of the risk they take that you'll not pay the money back, combined with a measure of the likelihood you'll take your business elesewhere if the rates are too high. They're like airline prices, they vary depending on the customer, the provider and the circumstances.
posted by jacquilynne at 12:40 PM on October 4, 2005

Unfortunately the exact method whereby the FICO score is calculated is a secret. We know more or less what things impact it but the exact amount is unclear. Inquiries, as you mention, are a perfect example. Utilization is another. If you have $1,000 in credit and carry a $900 balance that's bad - it's too much utilization. $10,000 in credit and a $2 balance is also scored badly.

I can give you one hard and fast absolute rule: carrying a credit card balance is for suckers. You're paying 5 to 40% more for something than it has to cost, depending on your rate and how quickly you pay it off.
posted by phearlez at 1:25 PM on October 4, 2005

What are the black and white rules for these?

Basically, there are no written rules that the company will provide to you, as jacquilynne says. One reason is that it's a competitive advantage to keep these secret (and publishing them would really upset a lot of customers). A second reason is that the rules will change as the market changes, better estimating models are developed, etc.

Essentially, the terms of your credit card say that the credit card company can change the terms any time they want, and they don't have to provide you with a reason. Normally they do have a reason, whether not it seems reasonable to you, since they don't want to be seen as totally arbitrary.

The most recent issue of Consumer Reports suggested getting a credit card from a credit union, which is much less likely to be interested in maximizing sharehold value at the expense of its customers, since its customers are its members.

And no, credit cards are NOT for suckers if (a) you pay off your balance every month, on time, and (b) you either pay no annual fee, or whatever annual fee you pay is more than made up for by reward points or reward dollars or whatever. (Moreover, using a credit card gives you a credit history, which is nice when applying for a mortgage to buy a house.)
posted by WestCoaster at 1:43 PM on October 4, 2005

I can give you one hard and fast absolute rule: carrying a credit card balance is for suckers.

And no, credit cards are NOT for suckers if (a) you pay off your balance every month, on time

Exactly who are you arguing with there?
posted by phearlez at 2:29 PM on October 4, 2005

Whoops! didn't see the critical word "balance". Apologies for the confusion (and repetitive advice).
posted by WestCoaster at 10:17 AM on October 6, 2005