Credit Score Trap

It’s hard to avoid the credit score trap and properly manage personal finances at the same time. Suppose you decide to close a credit card account when following the advice of a financial expert to help reduce your debt while attempting to improve or maintain your credit score and debt to income ratio among other things. Or, you decide to keep only one or two credit cards and close the rest of your credit lines to reduce your risk of identity theft. However, when you attempt to close any of your credit cards by calling the bank, they try to change your mind by telling you that closing a credit card will lower your credit score because closing an account will increase your loan to available credit ratio or because your credit card has many years of history and credibility behind it which will disappear even if it’s a trash history. Why is it that closing credit accounts lowers credit scores? If it’s because of score algorithm which calculates credit scores based on debt to available credit ratio among other criteria, then people can reduce or pay off their debts on some credit cards and close others while improving or maintaining the loan to available credit ratio. This credit score trap affects primarily those who have debts on their credit accounts and are trapped in this cat and mouse trap to supposedly maintain a good credit score while trying to reduce their identity theft risks. First of all, credit histories remain in credit files for many years including late payments; therefore, we don’t need an open and established credit card to impress creditors especially if this old history includes some negative activities. Secondly, isn’t it time to change the credit model by which we do business and take into consideration the current societal challenges such as identity theft and give people a break? The media and companies constantly ask people to be prudent against identity theft, without telling them to own fewer credit cards for good business reasons, and when consumers behave prudently by closing some of their credit cards, they get punished with lower credit scores. This is non-sense.

Consumers should not be punished for attempting to improve their financial positions or reduce their risk of identity theft with lower credit scores. Just because some people don’t have enough available credit lines or lower loan to available credit ratio doesn’t mean that they can’t apply for and obtain new loan accounts. It may simply mean that they refuse to be part of this credit score trap while knowing that they are financially responsible, credit worthy and identity theft conscious people. When measuring credit risks through credit scores, the companies that develop the credit scores such as Fair Isaac which developed the FICO score or the businesses that use the credit scores to make credit decisions should be concious of today’s realities and recognize the consumer challenges to maintain a balanced credit life while trying to reduce societal risks such as identity theft, unless the credit score trap was created to be just that, a trap.

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