If you routinely check your credit report with either Transunion, Experian or Equifax you may be surprised at what you find. Many people who pay their bills on time and have a good average length of credit history are shocked to see how low their credit scores are. Why is this happening? Companies like Capital One are notorious for shady credit reporting practices that actually hamper a consumer's ability to get credit. If you have a Capital One credit card it is important for you to understand what can go wrong.

Credit Limit

Under normal circumstance and with normal credit cards, the user's credit limit is reported to the various agencies and kept on record. Each month as your balance is determined and reported these companies then determine your available credit and the percent that you are utilizing. For instance, if you have a card with a $1000 credit limit and a balance of $250 then the credit bureaus know that you are utilizing 25% of your available credit. It is far more ideal to be at a utilization rate under 20%. No problem. You pay $75 off next month and maybe you now owe $180 after interest. Great you are utilizing 18% and this helps your score. Right? Not so fast!!

Rather than report your credit limit, Capital One is still often only reporting the highest balance you have had on the card. So if the most you have spent on the card was $250, then that is reported as your credit limit. Next month after your $75 payment and with a few bucks of interest added your balance is $180. Now before you owed $180 out of $1000 available and had a utilization rate of 18%. With Capital One's method, the bureaus think you are using $180 out of $250!! A whopping 72% utilization of your credit!!

Why this hurts you and helps Capital One

FICO scores that are routinely used for all kinds of financing are generated from a proprietary formula, but part of that formula is credit utilization. By falsely showing your credit limit as your high balance, this drops your FICO score. This could cause you to miss credit opportunities or be given higher rates on future credit. This actually helps Capital One. They do not want you to receive better cards with lower rates. This helps prevent that from happening. Many customers who try to lower their utilization are forced to generate a higher balance and pay it off. This is the only way to increase the reported credit limit that the bureaus send to other businesses when you apply for credit.

Many people are unaware that this is occurring. If you are a Capital One customer be advised. You may want to pay off the balance as quickly as possible, cancel the card or both. Be sure to monitor your credit report to make sure the proper credit limit is being reported. The motto of "What's in your wallet?" should be changed to "What's in your sock drawer?" because that is the best place for this card besides the trash can.