Score Suicide Warning

President Bush announced a plan on December 6, 2007 to will freeze interest rates for up to 1.2 million subprime ARM borrowers in an effort to aid the economy through the housing slump. To qualify for a five-year rate freeze borrowers must:

• Be no more than 30 days late at the time of the freeze
• Have been no more than 60 days late on the mortgage in the last year
• Have less than 3% equity in their homes
• Have an ARM resetting in 2008 or later
• Be capable of making the lower payments and not capable of making the higher reset payments
• Have a credit score below 660

The credit score maximum included in this plan could incite consumers to commit “score suicide;” voluntarily destroying their credit in order to qualify for the rate freeze. Because credit scores carry negative records for 7+ years, it's possible that worried borrowers may cause lasting damage to their credit.

Credit.com cautions consumers against:

• Closing the oldest accounts on your credit report. This loss of "credit age" could be very hard to recover
• Making 90-day or longer late payments. These late payments will damage credit scores for 7 years
• Applying for credit in excess. You may end up burdened with accounts you don't really want
• Entering the world of collections, judgments or liens. These negative public records cause severe credit score damage for 7 or more years

And consumers shouldn't forget that lowering credit scores could also impact their ability to open new accounts, insurance rates and credit card rates.

If you are a reporter interested in learning more about “Score Suicide,” please contact Emily Davidson at emily@credit.com or 415-901-1559.

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