Why has my credit score tumbled?

I have recently been advised by two of my three credit card companies that my APR is to be increased - MINT up to approx 24 per cent and now Alliance & Leicester to 34 per cent.

Both cards are utilising up to close to their maximum at around £10,000 and I make monthly payments of about £300 on each. I have been about five days late in making a payment to MINT in April but otherwise normally pay be the due date.

I have one other credit card with Morgan Stanley with a lower balance of £4000 and make similar payments.

In addition I have two personal loans with Egg initially at £18,000 each started nearly 4 years ago and with a further three years to run - this has never been more than a few days behind on payments, and never in the last 12 months as far as I am aware.

I have one other personal loan with Northern Rock taken out a year ago for £20,000 running for 10 years and paid on time as above.

My husband and I were looking for a mortgage last year and so made sure all was well with our credit score. Mine was around 970 after some discrepancies had been sorted out and my husband's was over 700 again with some further sorting out which needed to be carried out.

I checked my credit rating this week and felt extremely anxious when I saw it had dropped to 312 - there seems nothing obvious on the report, other than obviously quite a large amount of credit but this is not significantly different from last year and I have continued to make payments on time.

Please can you advise if credit scoring mechanism has changed. If I am paying such enormous interest rates I am afraid I will never clear these balances but the credit card companies will not reduce my rates on account of my credit score.

Jennifer Allen

Rising living costs and concerns about customers defaulting on their payments mean that many lenders are now monitoring their customers' credit reports very closely and are taking mitigating action, such as reducing credit limits or raising interest rates, where they believe someone's financial situation is deteriorating.

Your personal experience sounds like a very good example of this. You appear to have a lot of outstanding unsecured debt, perhaps in excess of £60k, and although I don’t know anything about your income and expenditure, this level of unsecured credit is likely to make most lenders a little nervy in the current climate.

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Unpaid medical bills may not hurt credit score

WASHINGTON (MarketWatch) -- Question: My son-in-law has several medical bills that have gone unpaid due to lack of funds. Are medical bills treated the same as outstanding credit-card debt and does it affect a FICO score?

Answer: Medical bills are not treated the same as outstanding credit-card debt. Consequently, they don't always have a direct effect on your FICO score.

One of the most important factors considered by the FICO algorithms is your revolving-credit utilization ratio. The utilization ratio is calculated as the proportion of your credit-card balances to your credit limits. The higher the ratio, the closer you are to being "maxed out" on your credit cards.

But in the eyes of the FICO score, the lower the utilization ratio, the better. The good news, at least for folks like your son-in-law who are behind in their doctors' bills, is that those payments are not factored into the utilization ratio, says Ethan Dornhelm, a senior scientist at the Fair Isaac Corp.

It's also important to note that not all medical debts are reported to credit bureaus. If the medical debt has gone unpaid long enough for the bill to be have been sent to a collection agency for recovery, then the debt is more likely to be reported to credit bureaus. At that point, according to Dornhelm, it will be posted to the area of the credit report that identifies accounts that have been sent for collection.

"Research has shown that consumers with previous late payments are much more likely to miss payments in the future and as such the FICO score penalizes consumers based on how many late payments and collections they have on file and how recently they occurred," the FICO scientist reports. "The precise impact to the FICO score will depend on the other info contained in the credit file.

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Congress weighs reprieve for seller-funded gifts

STOCKTON, Calif. -- A last-ditch effort to head off an Oct. 1 ban on the use of seller-funded down-payment assistance with FHA-backed loans is picking up steam as a compromise bill, that would mend rather than end the practice, gains momentum.

HR 6694, which would allow home builders to continue funneling down-payment assistance through nonprofit groups to home buyers using FHA loans, is certain to pass the House of Representatives and has the blessing of the Department of Housing and Urban Development, Rep. Barney Frank, D-Mass., said at a hearing on foreclosures this weekend.

The influential chairman of the House Financial Services Committee urged those attending a committee field hearing in Stockton Saturday to lobby the Senate -- which shoehorned language banning seller-funded gifts into HR 3221, the sweeping housing bill signed into law July 30 -- in support of the bill.

HR 6694 would automatically allow qualified borrowers with credit scores of 680 or above to use seller-funded down-payment assistance on FHA-backed loans, Frank said. Borrowers with scores between 620-680 who relied on seller-funded gifts might be subject to higher insurance premium fees.

Borrowers with scores below 620 would be excluded from using down-payment assistance until mid-2009, when HUD would be permitted to expand the program to include them if the Secretary of Housing determined it could be done without putting a dent in FHA's insurance requiring taxpayer subsidies.

HUD has sought to end the use of seller-funded down-payment assistance with FHA loans outright, claiming the practice artificially inflates home prices and that borrowers who relied on the gifts are more likely to default.

Although FHA loan guarantee programs have always been self-sustaining -- they are funded by premiums paid by borrowers, and not taxpayers -- HUD said the enormous growth in the use of seller-funded gifts and the poor performance of the loans threatens to put the insurance fund in the red.

Nonprofits that funnel payments from home builders to lenders to help borrowers meet minimum down-payment requirements on FHA loans dispute HUD's claims and have filed lawsuits that delayed HUD's implementation of a rule change banning the practice (see story). But the passage of HR 3221 made those court challenges moot.

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TRIAD Tips: Checking credit

The Office of Consumer Affairs and Business Regulations reminds consumers that they are entitled to one free credit report every 12 months from each of the three national consumer reporting companies, Experian, Equifax and TransUnion.

It is important to check credit reports regularly for accuracy and signs of fraudulent activity, especially with the increase in identity theft. To receive a free credit report, call any of the three reporting companies or visit www.annualcreditreport.com. Beware of other websites or unsolicited e-mails offering free credit reports. These sites that are not affiliated with the government-mandated free credit report program may claim to offer “free” credit reports; however, the reports are tied to the purchase of other products.

For a free credit report, follow these important steps:

· Steer clear of sites that promise free credit reports and then ask for credit card information.

· Do not respond to e-mails, pop-up ads or phone calls that claim to come from www.annualcreditreport.com or one of the credit reporting agencies. These may be scams seeking your personal information.

· Remember, there is only one official free credit report website. Access it by visiting the Federal Trade Commission at www.ftc.gov or directly at www.annualcreditreport.com.

· If you are uncomfortable with Internet security, order credit reports by phone or mail. Equifax, 1-800-685-1111. Experian, 1-888-EXPERIAN (397-3749). TransUnion, 1-800-888-4213.

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