Research published by Credit.com in March revealed that 8 percent of consumers have had their credit limit cut, as banks cite a riskier lending environment.
And now Congressman Luis Gutierrez of Illinois is questioning whether these rate cuts could be unfairly punishing people by lowering their credit score, Bloomberg reports.
To determine a borrower’s credit score, FICO considers a range of factors, including credit utilization. Some experts suggest consumers should not use more than 10 percent of their available credit at a given time, in order to keep the ratio low – which will benefit your credit score.
But what if a financial institution suddenly reduces the amount of credit you have access to? You could potentially end up exceeding that 10 percent recommendation – and your credit score could suffer in the process.
According to Bloomberg, Gutierrez is planning to call a meeting of the House Subcommittee on Financial Institution and Consumer Credit later this year to discuss credit scores.
“Reductions to a consumer’s line of credit based upon the lending institutions’ overall appetite for risk has little or no bearing on a consumer’s own risk of default,” he told the news provider.
The worry is that consumers who – through no fault of their own – have had their credit limits cut will find themselves paying higher interest rates on other types of loans.
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