Guest post by Mike from Faslip.com
Credit Cards may be watching more than your credit score and payment history: Some may be looking at what you purchase and where.
We live in an information age. One major concern for people who have at least a basic understanding of how technology works is their privacy. Identity theft is a huge problem, as well as the general collection of our personal information. Therefore, it is bad enough that companies are collecting our personal information but many sell it to third parties. When you sign up for a service such as cable, you give them information. Now you think this is so you can set up your account. That is true but they also make a lot of money by selling your name, address in other relevant data such as usage habits to other firms for profit.
A major credit card company most probably know, American Express, has not only been checking your credit score but mining other data such as home prices in your area, the type of mortgage company you are using, and whatever else that peaks their interest. The most eye opening in my opinion is that they have been looking at how a customer spends money, as a way of creating new links to what are the habits of someone who has payment issues.
According to a New York Times article, American Express would then in some cases act on these “patterns” and cut credit lines, stating in notification to the customer that “Other customers who have used their card at establishments where you recently shopped have a poor repayment history with American Express.” Talk about a kick in the pants. Here we are trying to teach our kids not to judge and be tolerant and American Express says you must be a delinquent because you buy certain things.
The author of the article, Ron Lieber, goes on to right that “It sure sounded as if American Express had developed a blacklist of merchants patronized by troubled cardholders. However, late this week, American Express told me that was not the case. The company said it had also decided to stop using what it called “spending patterns” as criteria in its credit line reductions.”^1
A spokesperson from American Express apparently replied to the author and told him that the main measurement of credit worthiness continues to be your total debt compared to your ability to pay. I think it goes without saying that if American Express is looking at your person information in this way, and then other banks are as well. Even though it seems the worst is behind us, credit card companies will continue to find ways to leverage card member information to extract more fees. They way they will do this is by saying “Our research shows that people who eat a banana everyday always pay on time but we have no record of you every charging bananas so we canceled your credit card.” It may sound laughable but I can not tell you how many people I have spoken to that I know personally make good money and have great credit, tell me that their ( insert card name ), raised their rate to ( insert ridiculous rate with no substantiation.)
As mentioned, Amex is also using credit reports to identify your mortgage lender. If your lender is considered subprime or has gone bankrupt, you could see your credit line penalized. The problem with this “pattern:, is the fact that mortgages can change hands several times as they are bought and sold leaving you being punished in some cases when your loan originated from a strong bank. If you think such a tactic was used on you then the burden is on you to contact the necessary people to prove your loan originated with a non-subprime bank.
Another lender, CompuCredit, apparently got in trouble with the FTC when it was discovered that a customer’s credit line could be reduced if they charged at certain businesses. What are these nefarious credit-reducing businesses? Marriage counselors, bars and nightclubs, pool halls, and massage parlors, pawnshops, and other establishments of the delinquent cardholder.
In summary, you have to spend some time managing your credit. Ideally, you would have no credit, in which case much of these issues would not matter. However, many of us have not reached that goal of being debt free in which case protecting your APR and credit line are vital. Because one of the major factors in your credit score is the ratio of the total of your credit lines relative to the amount of debt in use. This percentage due to the great financial crisis should be under 20 percent compared to the consumption years of 36 percent. Ultimately, if you find that your credit card company is playing games similar to American Express, then try a credit card from a credit union, smaller bank or anyone else who is not judging you by where you shop.
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I personally knwo someone who received a call from his credit card company who asked him if he would accept $300 if he would close his account. He turned them down.