When consumers apply for a credit card to take advantage of a discounted offer, creditors have to make a quick decision as to whether the applicant should be approved. And according to financial experts, these determinations are often determined by guesswork.
In an interview with WBZ-TV, a Boston-based news station, personal finance expert Dana Levit said creditors make an educated guess about whether a consumer is capable of repaying loans through "income estimators," which are generated by credit bureaus. She said that by using tools that measure a person's mortgage, for example, creditors estimate how much income the applicant is earning.
Levit said that while these estimates sometimes prove to be accurate, credit bureaus often guess wrong and give consumers a reduced spending limit because they think the applicant doesn't earn much.
"If you have a smaller mortgage than what the statistics say you should have, you are going to look like you have a much lower income than you actually do," Levit told the news station.
By the same token, consumers who believe their credit scores should be higher than what they are may want to examine their credit reports for inaccuracies and other examples of unfair credit reporting.