I have a borrower who has a mid-score on her credit report of 809.  She has a credit card with a zero balance with the last activity reported in 2009. She has not charged anything on this account for six years.  [The Rural Development loan officer] is saying that because there is no minimum payment showing on the credit report, she must calculate the payment based upon 1 percent of the credit limit, which would be $180 in this case.  This means the applicant would no longer qualify because her TDTI would be over 41 percent due to that $180 payment.  What makes me question this logic is that [The Rural Development loan officer] says that if the client had a balance on the card (of even $100) and a minimum reported payment showing on the credit report of $15 , they would use the payment showing on the credit report and not the 1 percent credit limit.  My borrower is being penalized for having a credit card with a zero balance.  This doesn’t seem right to me.  Can you please help me to understand the reasoning behind this logic?

Sincerely, When zero doesn’t equal zero


Dear Logical Thinker,

Normally I would be quick to say the Rural Development loan officer is mixing the student loan payment calculation requirements with minimum payment regulations but another state recently insisted it too would implement a minimum payment on open credit cards/lines with a zero balance, so I dug deeper. Here is what the National Rural Development Office says.

For revolving accounts that are open but have zero balance and zero payment at the time the credit report is obtained, you don’t need to calculate a minimum payment.

However, if the revolving account does have a balance but the monthly payment is zero, that means the payments are deferred.  In this case, you would have to estimate a monthly payment using 1 percent of the balance (not credit limit).

So here’s what you need to do with revolving accounts that have a zero balance to figure the minimum payment due:

  1. If the credit report shows a minimum balance, use that amount.
  2. If the credit report does not show a minimum balance, don’t calculate in a payment.
  3. If the credit report shows a balance but no monthly payment (deferred charge), calculate 1 percent of the balance—not the credit limit.

Sincerely, Sher

Dear Sher is a regular Self Help Builder News feature. If you have a question you would like Sher to answer or research, please send it to asisco@rcac.org and your question may be featured in a future publication.