If you are a good customer, however, shouldn’t you be able to get your limits raised?  If you have made your payments on time, and kept your balance below your limit, your credit issuer should consider you a good source of credit, right?

Well, not any more.  Becky, who had the problem with her JC Penney card in the blog post above, just got a letter from GE Money bank.  GE Money Bank wrote to let Becky know that she would not be getting a credit line increase.  She hadn’t asked for an increase, but they thought they should tell her she couldn’t have one anyway.

Becky has been making her minimum payments, hasn’t been using the card, and hasn’t been late on a payment.  Her balance isn’t shrinking much because she is making the minimum, but that is what you are supposed to do, right?

Nope.  Now, you have to pay aggressively.  It seems that the credit card companies don’t want to see you carry a high balance any more.  That is just too risky.  They want their money paid back quickly so they can make sure your account doesn’t turn into another default on their books.

Here is what GE Money Bank said about Becky’s account:

1)      Average percentage of credit limit used on this account over most recent 3 months.

2)      Number of months this account has been open.

3)      Percentage of times payment greater than amount due over last 12 months for this account.

4)      Low ratio of payments to amount due over last 6 months on this account.

What does this mean?  Let’s take them in order:

1)      Average percentage of credit limit used on this account over most recent 3 months.

Here, they are saying her current balance is too high.  She needs to drop the balance of the account.

2)      Number of months this account has been open

The account history isn’t long enough for the creditor to feel comfortable.  Becky has had the card for about 18 months (she got it before Christmas 2007).  They apparently want more of a credit history than she can offer.

3)      Percentage of times payment greater than amount due over last 12 months for this account.

Becky has been making minimum payments to prove she will always pay on time and that she is a good credit consumer.  Apparently, giving a creditor a lot of interest isn’t enough.  She needs to pay more on her account than the minimum every month to prove she has the means to pay the card off faster.

4)  Low ratio of payments to amount due over last 6 months on this account.

As with number 3, they want more money.  How much is enough?  Well, 4% is about what they charge as a minimum.  I would suggest 10% as a good starting point, and you can pay a bit more or less depending on your personal financial situation.  Of course, you can always call your individual creditor and see if they will give you a percentage to follow.

As with anything else, the rules change over time.  You need to pay a bit more now than the minimum required, and you need to keep your balance lower, in order to have a good credit standing with a creditor.  Unless you do this, your chances of getting a higher credit limit are greatly reduced.

Susan Saulny, a writer for the New York Times, has written a story about a new problem with Foreclosure:  The bank may not want your property back!

In some cases, the cost of the foreclosure exceeds the value of the property.  In that case, the lender may not go through with the foreclosure, which means the holder of the title (the current homeowner) is liable for the property.

The real problem, though, is that in some cases the former owner moves out, but when the foreclosure stops, the former owner is liable for the property.  In the article, Ms. Saulny goes on to explain that this liability may include fines if the home is not kept up, as well as other fees.

The rest of this story is available here:

http://www.nytimes.com/2009/03/30/us/30walkaway.html

She is helping a young couple and their kids relocate from another state.  They have a fairly limited budget, and are trying to stay under a $150,000.00 purchase price.  This couple has been pre-qualified through a lender they chose, and have a pre-qual letter, so they can purchase up to that $150k mark.

They found a house they like, and decided to put in an offer on it.  The house is owned by Countrywide Mortgage, and they had a little surprise that went along with the offer.

They told the couple that they would have to fill out a Countrywide mortgage application before the offer would be considered!

Now, I know that times are tough for mortgage companies.  I know they have taken a beating.  But this seems really extreme.  Let’s take a look at what this does:

1)      The couple applying for the loan are going to take a hit on their credit scores.  Queries against your report that are similar in nature, such as several mortgage applications within a short amount of time, are considered ‘shopping’, and do not ding your credit.  However, since this couple qualified several months ago, the new app will be a big hit.  It is only 5 to 20 points, but if that drops their credit scores a bracket, it will affect other rates that they may be eligible for.

2)      The original mortgage company may be out of luck on this loan.  Countrywide may win the mortgage, and that means another company loses business.  Normally I am fine with this, but not if the application is coerced and is not what the couple intended to do originally.

3)      This adds extra time to the whole process.  This couple is relocating for work (he is in the military and is being re-assigned), and they have to move quickly.  Now they make have to stay in temporary housing for several months, much longer than they had hoped, before their place will be available.

4)      Unless the mortgage company is being really generous, the purchaser might have to pay for the privilege of filling out yet another loan application.

Why would a mortgage company do this?

Well, financially it makes a lot of sense.  The mortgage company has taken a loss on the principle of the house.  Let’s say this was originally a $180,000.00 loan.  It now sells for $150,000.00.  That is a $30,000.00 loss, correct?  Well, not exactly.

The first several hundred payments on a property are largely interest.  If this house had a $1,000.00 payment for, say, 5 years, $60,000.00 would have been paid out.  Let’s be conservative, and say that $40,000.00 of that was interest (that is pretty conservative).  In that case, after the mortgage company paid back their expenses and the interest they had to pay on the loan from their financers, it probably made a profit on that interest of $20,000.00 or so.  My numbers aren’t exact, obviously, but they make a profit on every payment.  Otherwise they wouldn’t be in business.

They also wrote off the bad debt on taxes.  That takes even more away from their loss.

They had to eat some bucks on the short sale.  Fine.  That is part of doing business.  Now they are looking to make money back.

When a short sale happens, the original lender loses any monthly profit on the loan, unless, of course, the new loan is through them as well.  They want that loan!  The new buyer has to qualify, of course, but if they can hang on to the loan they can make up some of the loss.  So, it makes perfect sense that they want an opportunity to get the loan.

I can see why they do this, but I am not happy about it.  Any time I have to fill out additional paperwork, take a credit score hit, and get nothing out of it other than the privilege of being able to buy something, I feel wronged.  This is a business practice that feels predatory, and I would hope that enough people boycott companies pursuing this practice that it will soon come to an end.