Friday, January 30, 2009

Credit cards "shopper profiling"





Credit card companies are always finding new ways to charge you more money. But according to this report from Good Morning America yesterday, they've found a really, really nasty way of late.

They're profiling you by watching where you shop. The story goes like this: you have great credit and a high credit limit. They can't touch you and under normal circumstances don't have a reason to mess with your interest rate. But what if they could find a way to tie you to other people who don't have good credit, sort of consumer guilt-by-association?

Credit card companies have found that way: they're looking at where you shop, and if you use their cards at the same places as people who don't pay on time that becomes justification to cut your credit limit. If you know anything about credit you know that a big piece of your FICO score is the percentage of your available credit that's already in use. If you've got a $2,500 balance on a $10,000-limit card and the company cuts your limit to $5,000 because you shopped at the same store as Jane Deadbeat, all of a sudden that ratio jumps from you using 25% of your available credit to 50%. Your credit score falls and poof: higher interest rates.

What can you do about it? Not likely much at this point: the practice is shady as all hell but still legal, just like insurance companies using your credit rating to push your rates up. You could switch to another card, but closing accounts also hurts your score and who's to say the new card isn't doing the same thing? My best suggestion: call up your card issuer and see if they're engaging in the practice. If anyone gets good answers, let me know and I'll post them here.

5 comments:

Butterrfly said...

Profiling me along with "Jane Deadbeat"?... but has no limits...she shops everywhere from Target to Neimans... I'm screwed. :-(

Velvet Jones said...

This is so borderline and dangerous it's not even funny. Especially since we have no idea what retailers set off the alarms. So what, am I supposed to be scared to pull out my credit card next time I go to Harold's Chicken Shack? Boo credit card companies, BOOOOOO!

Seriously though, there is a LOT of potential for racial/ethnic profiling here. I hope this gets nipped in the bud sooner rather than later.

Fabulous Financials said...

Hmm...I wonder how this will affect the MILLIONS of Wal-Mart shoppers who may be affluent, just frugal?

Although I pay in full, they still earn money from merchant fees when I use the card. So if my limits were reduced because of something silly like that, I'd tell them to go kick rocks never use the card again.

My best suggestion is to never carry a balance, then a reduced limit OR increased rate will have little (if any) impact. Further, we have to take more responsibility for ourselves and stop blaming and accusing the credit card companies of shady practices. Whether we like it or not, they are in the business to make money...period. If the easy "unsecured" credit didn't exist, how would people even survive?

Keith T. Reed said...

Fabulous, I agree that the best thing anyone can do is not carry a balance on a credit card. That said, whether or not I carry a balance doesn't excuse card issuers when they decide to change the terms of their cardholder agreements to benefit themselves to the peril of their customers.

On the street, that's called loansharking and it's illegal. I'ma huge free-markets guy, but we do a disservice to the market if as a society we allow financial institutions' right to profiteer supercede sensible consumer protections against abuse, and if this practice ain't abusive, I don't know what is.

Fabulous Financials said...

Yea, I hear you. But I beg to differ on the loansharking reference, which is defined as lending money at excessive interest rates. CCCs are trying to find another angle to earn a profit, which may OR may NOT lead to "excessive" interest rates.

Now I'm not saying profiling is right (any judgment passed without merit is unfair). All I'm saying is that at some point, we (consumers) need to draw the line at the blame/complaining game and take some personal responsibility.

Let me ask you a question...

If you frequent a "business" and they treat you poorly, what do you do? 1st offense, 2nd offense, then the 3rd offense?

Even if the behavior is illegal and requires government intervention, at what point do you stop exposing yourself to the undesirable behavior?

Even if the government intervenes and solves the problem, do you return to your normal mode of doing business?

I don't know you at all, but I think it is safe to assume that you would change the way you interact with that business - either in a modified way that suits YOU or not at all.