“Behavioral Scoring” Leaves Some Consumers With Reduced Credit Limits

January 30, 2009 07:29 AM
by Lindsey Chapman
Some credit card companies are using the habits of other shoppers to determine how much credit you can have.

What is Behavioral Scoring?

Tough financial times have prompted some credit card companies to use new methods of evaluating how much spending power their customers are allowed.

Credit scores used to be the primary gauge for judging whether consumers would pay their debts, but companies are now rating them based on where a person lives, shops and works as well, according to The Denver Post.

Even consumers with a good credit score might see their credit limit reduced or their interest rate increased if they live in an area with a high foreclosure rate, for example.

Some people say the financial situation of their neighbors shouldn’t affect them.

“I chose to live in an area that I could afford in a sensible manner,” Jeff Gold, a surveyor, told The Denver Post. “I bust my butt and have a damn good credit score. My neighbor's inability to pay his mortgage is not reflective of my ability to pay mine.”

For Kevin Johnson, “behavioral scoring” has created troubles with his credit, even though he has his own business, his own home and has never had a late payment on a credit card. A credit score of 740 is generally considered excellent, according to ABC News, and Johnson’s is 764.

But not long ago, Johnson learned his $10,800 limit on his American Express card was cut to $3,800. One reason, the company told him, was, “Other customers who have used their card at establishments where you recently shopped have a poor repayment history with American Express.”

Robert Manning, director of the Center for Consumer Financial Services at the Rochester Institute of Technology, discussed the reasoning. “They are saying, ‘We don't like the behavior of other people that are shopping in stores that you are currently conducting business,” Manning said to ABC News. “Therefore, that raises questions about your ability to repay the loan.’”

But to Manning, the practice is questionable. “They've crossed the ethical line in terms of looking at where you're spending your money and making a judgement about whether that's a good or bad decision for you to make given these financial times,” Manning was quoted as saying by ABC News.

Credit card companies are dealing with growing delinquency rates with their clients. At the end of 2008, Capital One had a delinquency rate of almost 8 percent, which made the company look at individual customers more carefully, according to The Denver Post.
“Many card issuers are trying to sell off their portfolios and very quickly need to lower their risk and want to rid themselves of those things that might make it unattractive,” Olivier Garret, chief executive of the Casey Research firm in Vermont, explained to The Denver Post.

As for Johnson, he says he is still trying to understand where his shopping habits may have gotten him in trouble. American Express didn’t tell him which of the stores he visited raised concerns.

Johnson has created a Web site,, to tell his story and “inform consumers of practical ways to improve their credit while encouraging a more open dialogue with credit card companies about their new policies –good and bad.”

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Related Topic: Understanding credit scores

A credit score helps lenders decide whether to give you credit, and is generated based on factors such as how much debt you carry, whether you pay your bills on time and collection actions against you. With this information, prospective creditors can determine how likely you are to repay debt to them.

The Federal Trade Commission (FTC) says it is “critical” to ensure you have an accurate credit report. These reports can be obtained for free once every 12 months from each of the three national consumer reporting companies in the United States.

Reference: Credit


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