A few weeks ago, I wrote a post on banks freezing credit lines. Well, now this has become common practice with all lenders, which you could assume would have happened.

On one hand I cannot blame them and feel it is a good precautionary measure for worse times to come. On the other hand, I would think practice and procedure could have been more thought out as well.

Apparently, a form letter is merely sent out notifying the borrower that the credit line is frozen until further notice. The bank does inform that it is due to declining market values in the area and that the property is worth less than it was appraised at time of loan application. This is fine and I would not expect more information or better bedside manner.

However, what has me worried is how it is reported to the credit bureaus.

Account Closed by Creditor

This can do nothing but hurt the payment record and lower one’s FICO score. Even if you still show more of an available balance on the line and perfect payments, these words will hurt your score severely.  The computer and other creditors read it as the credit grantor cut you off for bad behavior. Although not true, this is what is perceived.

Since, this process is so new, we are doing further research with our credit service company on the affects of same.  We are also surveying a handful of our lenders to see what they do and how it will affect the consumer score.  I will assume that they just did not think about it, and changes will be made to the system to have a non-affect. I will report later in time, but be aware this can happen to you.

If you do receive a credit freeze letter, contact the lender and ask the process and what the affect on your score is. – Dale Siegel