If anybody should know what does and does not significantly affect a consumer’s credit score, it should be FICO. So why in the heck did they need to do a study to evaluate how many people out there are losing points on their score due to circumstances that are out of their hands?

The answer is likely in part because FICO (also known as Fair Isaac Corp.)  has a vested interest in the results of the study. Has anybody else noticed that there is some serious competition going on in the credit scoring arena, with a number of different scoring models vying for the business of determining who is creditworthy ? With banks and lending institutions reducing consumer’s credit limits left and right, many of us have legitimate concerns about how these cuts will affect our ability to obtain credit in the future.

The results of the study, at least as FICO would like you to interpret this, should ease most creditworthy folk’s minds. In a nutshell, the study found that if you don’t carry a high balance and you are a responsible credit user (paying off your balance every month), the cuts will have minimal impact on your FICO credit score .

Overall, the study results indicated that approximately 33 million credit card holders in the U.S. (one out of every five credit card holders) had been notified of credit limit reductions during the time period of October 2008 to April 2009. Within that group, approximately 9 million credit card holders had justifiable “risk triggers” such as late payments that would normally result in an action to reduce their credit limit. The remaining 24 million consumers who had their credit limits involuntarily reduced even though they did not have any “risk triggers” associated with their accounts were the primary focus of the study.

Here is a summary of the findings within that group:

• Consumers in this group had a median FICO credit score of 760, based on the FICO scoring model’s 300-850(R) range.
• Half of the group (or 12 million) actually saw their score increase.
• 8.5 million had a decrease in their score, but less than 20 points.
• 3.5 million experienced no significant change in their score.
• The majority of these consumers had low account balances and credit utilization ratios, significant credit history and for the most part no negative information on their reports.
• The average reduction in credit limit was found to be $5,100, more than double the reduction that FICO noted in a similar study for the period six months earlier. However, $5,100 was only 14% of this population’s average total revolving credit.

Additionally, the study concluded that consumers who max out their available credit limits by 70% or more are  20-50 times more likely to become delinquent on one or more credit accounts in the next several years. Consumers who maintained low balances, 10% of their credit limits and below, were the most creditworthy customers, confirming the generally accepted fact that credit utilization appears to be one of the most significant factors in predicting credit risk for the typical U.S. consumer.

A full report on the study is available on the FICO website.

What do you think readers, are you feeling better about those letters you’ve been getting reducing your credit limits? Has anyone really noticed a significant change in their score due to credit limit reductions? Share your story with a comment if so!

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