About a month ago, I received an alert from my Equifax service that my FICO score had dropped 16 points... argh!!!  I logged in and found that my most recent credit application from early May had triggered an inquiry limit, and flagged me as a consumer desperately seeking credit.  Well, it is true that I have applied for credit more over the last 2 years than in any period of my life, but it has not been in desparation.  Over the last 2 years, I've purchased a home and a townhouse, both for rental purposes.  I opened several credit card accounts, including one each from Home Depot and Lowes, to help finance and improve the properties.  All these accounts had very attractive initial interest rates, so it made a lot of sense from a pure financial and accounting standpoint.  My initial seed money for the purchases came from a home equity line of credit (HELOC), and I've since refinanced the first home I purchased.  My two rentals are doing well and turning a small profit, and I have significant equity in both properties.  Yet the vagaries of the FICO formula conspired to make me look desparate.  As I've mentioned before, the FICO formulas don't know or care what your income is or what assets you own, they simply look at trends in your credit habits and try to predict the future based on large-scale patterns of those with similar credit habits.  Some will be helped by these calculations, while others will appear to be a greater credit risk than they really are.

A co-worker and friend of mine told me an almost unbelievable story about his home equity line of credit with GMAC Mortgage.  He and his wife recently had their 4th child, and wanted to build an addition to their house.  They received a $50,000 line of credit with a small book of check to use to pay contractors.  At some point, they ran out of checks and requested more from GMAC.  Within a week or so, they received checks and the wife wrote a $5,000 check to a contractor, one of the final payments for the project.  Unbeknown to her at the time, the new set of checks was a sheet of MasterCard checks, not a HELOC check.  This unfortunate mistake caused a new MasterCard line of credit to be opened, with a 3% check-writing fee applied to the new balance.  My friend, who normally has a very calm and friendly demeanor, was understandably irate with this seemingly intentional bait and switch maneuver by GMAC.