Broke-Ass Student

Do you faithfully pay your bills on time every month and never exceed your credit limit? You could still potentially be flagged as a credit risk and have your limit lowered based on criteria beyond your control. I stumbled across this article in The Atlanta Journal-Constitution which reflects how rapidly rules can change in the credit industry, even for responsible card holders.

Ed Mierzwinski, consumer program director at U.S. PIRG, a Washington-based consumer organization, said companies are telling consumers that “everything you have known for years is no longer true.”

The credit companies no longer guarantee customers will be considered low risk if they pay their bills on time and never exceed their credit limits especially if they don’t like where you shop – even for typical transactions, like Amazon or Starbucks.

“Now you have to watch where you shop, because if you shop where deadbeats shop or live where deadbeats live, we’re going to use that as a reason to lower your limits or increase your rates,” Mierzwinski said.

From The Atlanta Journal-Constitution
Sunday, December 21, 2008

Kevin D. Johnson returned from a dreamy Jamaican honeymoon in October eager to check out wedding photos and help his new wife open stacks of beautifully wrapped wedding gifts.

Before getting distracted by the fun stuff, the 29-year-old entrepreneur opened the mail. Johnson’s mood soured when he got to a letter from American Express, saying it had slashed the credit limit on his account.

Johnson was surprised, since he has a perfect payment history and a high credit score. And he was floored by one of the reasons American Express cited: It didn’t like where he shopped.

“Other customers who have used their card at establishments where you recently shopped have a poor repayment history with American Express,” the letter said. Johnson complained to American Express by phone and letter.

“That doesn’t have anything to do with whether I’m a paying customer or not,” he said in an interview.

Johnson checked his charges to try to figure out what might have raised a red flag in the American Express data-mining model. He didn’t see anything but typical transactions, including purchases at Amazon, Ruby Tuesday, Wal-Mart, Starbucks and Federal Express.

“I understand the need for and the power of predictive analytics,” Johnson said, “But I think they have crossed the line.”

American Express declined to discuss Johnson’s account. But it confirmed that it examines spending patterns. It’s just one of many tactics that credit card companies are using to try to keep default rates from growing higher. Along with studying shopping habits, American Express considers which mortgage lender a customer uses and whether the customer owns a home in an area where housing prices are declining.

These factors are combined with a review of other details to decide whether to adjust a credit limit.

“We’re just doing this to manage risk,” said Lisa A. Gonzalez, an American Express spokeswoman. She declined to say which retailers or mortgage companies are associated with consumers with higher default rates. She said it makes sense to examine these factors because “customers who have loans outstanding with certain lenders or customers who make transactions with certain merchants tend to have a higher proportion of credit issues or a higher probability of default.”

“It’s not a fair practice,” said Travis Plunkett, legislative director at Consumer Federation of America, a consumer advocacy group. “I imagine this person feels this is guilt by association. It doesn’t work in the justice system, and it shouldn’t work when it comes to credit card charges.”

Full article: Credit Companies Adjusting Credit Limits – For Some, Lowering Based On Where They Shop

Always keep your eyes peeled when your credit statement arrives in the mail and carefully examine any paperwork that arrives with the bill. Those small pieces of paper we love to throw away may contain notification of changes to your credit limit, rate or any other adjustments to the original contract you signed with the credit company.

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