Up until last week, Capital One was poorly servicing their credit card customers. Rather than reporting customers’ credit limits to Equifax, Experian, and TransUnion as other credit card issuers do, Capital One would report the high-water mark.
In this situation, if one’s credit limit is $5,000, and the maximum ever charged in one billing period was $1,000, Capital One would report $1,000 as the credit limit. If this billing period was also the one in which $1,000 was charged, then your credit utilization ratio would be 100%. This hurts more due to the fact that Capital One targets customers with bad credit, and many of their customers would not qualify for other cards. A 100% usage ratio would damage the customer’s credit score to the point where they could not qualify for the best loan rates. The correct utilization ratio should have been $1,000 to $5,000, or 20%, a much more favorable figure that would not damage the credit score.
From a syndicated article about the positive change:
Capital One never disclosed this practice to its customers. Though industry critics said Capital One’s purpose was to hide its good customers from the prying eyes of competitors searching credit bureau files for attractive FICO scores, the company itself insisted that it sought instead to protect customers’ privacy.
Many customers who became aware of this practice discovered it from blogs like Consumerism Commentary and others or investigative news articles. I’d like to think that it was this reporting and the resulting complaints from customers that convinced the company to change its policy. The change will be complete by the end of the year, and customers will start to see improvements in their credit scores due to the change within the next few months.
Capital One now reporting credit limits, helping buyers [Seattle Times]
Updated February 6, 2012 and originally published August 13, 2007.