We posted a blog about a year ago which announced that the Federal Trade Commission (FTC) had filed a lawsuit against credit card issuer CompuCredit (CCRT). One of the (many) allegations made was that CCRT did not properly disclose that it monitored spending and cut credit limits if consumers used their credit cards at “particular places”. A settlement was reached in the case earlier this year, alleging deceptive contact by CompuCredit in issuing the cards, and abusive practices while collecting debts. Specifically, CompuCredit marketed to consumers a credit card with “up to a $3250″ limit, but failed to disclose adequately that half of the available credit would be withheld for the inital 90 days, and that during that period the company would be monitoring the purchases made on the card which could lead to credit limit reductions based on an undisclosed “behavioral scoring model”.
So exactly what do they mean by a “behavioral scoring model”? With credit card charge-off rate in the United States rising to a record high in August, credit card companies have started proactively seeking information about their cardholders habits in an effort to curtail potential default before it becomes out of control. To help them identify potential default candidates, banks are compiling thousands of bits of data, like what you buy, where you buy it, and possibly even who you are with – it is called “data profiling”, and it is a $25 billion dollar business.
So what are some of the types of purchases that might be construed by banks as making a consumer at risk for some sort of upcoming financial distress? According to an article in American Public Radio’s Marketplace co-written with Robert Manning (author of the book “Credit Card Nation”) , the following are ten types of purchases that will potentially cause your creditors to take note:
Traffic Fines: These are a sign of reckless, irresponsible behavior and potentially higher auto insurance rates.
Retreading tires: This type of purchase may be construed as one that is made only under severe financial stress.
Low Cost or Bargain Stores: Shopping at the Dollar Store (or similar) if it is a change from your norm may signal budget issues to your bank.
Adult Shops or Clubs: Probably no need to explain this one, definitely a place to use cash if you need a fix!
Marriage counseling: A sign of relationship instability and/or potential divorce.
Lottery tickets: Well, this is just a form of gambling, and doesn’t exactly paint a picture of fiscal responsibility or reality.
Cash Advances: Signs of desperation, banks know how much they charge for these “loans”.
Visits to the Spa: So stressed out you need this type of pampering? Not a good sign.
Income taxes: Well, that is enough to stress anyone out, who wants Uncle Sam after them?
Bars and Alcohol Purchases: Trying to escape from something by binge drinking?
Frankly, the list to me looks more like warning signs to look for in your mate’s spending habits, so who could blame your creditors for getting suspicious! Particularly if the spending activity is a change from the norm, this could potentially raise a red flag to a bank or creditor. Moral of the story? If items on this list are part of your everyday expenditures, do yourself a favor and just use cash. If you don’t have the cash to make the purchase, that should be your best indicator that perhaps it is not a wise expenditure at that time.
Readers, do you have any suggestions for additional items to add to the list? If so, leave a comment!
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Wow! I didn’t even know they could do that!!!
(Other than the fact that you really shouldn’t be going unless you can pay for it!)
Some of the things I can see as being an issue, but I’m not sure about the spa charges.
I’m guessing other no-no’s would be paying a bail bondsman, criminal or bankruptcy attorney, credit counseling or debt settlement company.
Thanks for the great information!
So when I stay at the Bellagio in Vegas, my credit card is attached to the room (standard procedure) and I go to the spa there one day for a facial or body treatment, those spa charges attached to my room’s bill are seen as a red flag? I doubt it. It also depends if you pay your balance in full each month, as I do. Who cares what you put on your card if you can pay it in full at the end of each month? I don’t frequent adult stores or use my cards in bars, but I think this type of “red flag system” is just hyper-fear intended to scare consumers into 1) paying their balances off each month and 2) making them think the banks have more psychological power than they do. I think it’s best to just relax and not get hung up on this type of hyper-vigilant stuff.
I have to admit I was surprised at some of the things on the list. Obviously, if people are paying off their balances in full every month, it probably doesn’t matter where the money is being spent. What is believable is the banks noticing a change in spending habits, like putting more money into stress related, or fantasy seeking purchases. If this change is accompanied by a change from paying off on time every month, it could be considered an omen of deteriorating finances. As far as being “scared” into paying off credit card balances in full every month, I would consider this a good scare. Paying any interest on a credit card when it’s not necessary is equivalent to throwing money directly into the trash can.