What You Buy Matters to Credit Card Companies

Did you know credit card companies are increasingly monitoring not just how much you are spending but what exactly you are buying?

According to “Your Lifestyle May Hurt Credit Score” on Yahoo! Finance, some credit card companies consider purchasing behavior, not just payment history, when deciding how much to lend and at what interest rates.

As part of a lawsuit regarding proper disclosures, “the FTC claims that CompuCredit didn’t properly disclose that it monitored spending and cut credit lines if consumers used their cards at certain places. Among them: tire and retreading shops, massage parlors, bars, billiard halls and marriage counseling offices.”

“The company touted that cardholders could use their credit cards anywhere,” says J. Reilly Dolan, assistant director for financial practices at the FTC. “What they didn’t say was that you could be punished for specific kinds of purchases.”

Experts say that with increased competition and advances in technology, companies accross the industry are adding all sorts of behavioral data to their scoring models. “We as consumers should become aware that behavior is used to determine our creditworthiness,” says consumer advocate Karen Gross, president of Southern Vermont College.

More from Meg at The World of Wealth

11 thoughts on “What You Buy Matters to Credit Card Companies”

  1. It’s not like it’s really “monitoring” in the sneaky sense of the word… I mean, all the data is just sitting there, it’s the same data they give you on your statement. I don’t see much difference between that being a factor in your creditworthiness and the color of your car being a factor in your insurance premiums, it’s all statistics.

    But the lack of disclosure, yes, is not fair. The insurance companies up front tell you that red cars are more expensive than white, or that males pay more than females, etc.

    Besides JLP, if you’re in favor of food stamp purchase restrictions because it isn’t their money… well, credit card money isn’t your money either until you’ve paid it off, so why shouldn’t the lender have some say in what you use it for?

    And what about affiliate cards… what if you get a card affiliated with your church or morally upright organization of some sort… maybe they would prefer you not frequent massage parlors or billiard halls too… as long as they disclose up front that those kind of purchases were blocked, what’s wrong with it?

    If anyone should be annoyed about this it’s the merchants whose services are being targetted, as once it is known, their customers may refuse to use their credit cards there and if they have no cash, it may mean lost revenue for the merchant while still paying full fees. Of course, I guess the credit card holder could just go down the street and take a cash advance to get his happy ending without an unhappy one.

  2. I would have thought they would increase your credit limit for all the frivilous spending on your card. If you are the type of person who is an impulse shopper or someone who likes to splurge themselves then increasing your credit limit would tempt you to spend more. And be more likely to not be able to foot the bill at the end of the month and therefore pay more interest.

    I believe the credit card companies have it all backwards!

  3. I wouldn’t be surprised if there’s a note on my account that says “alcoholic”.

    I have tons of charges from bars in NYC. Not because I drink a lot (I practice moderation), it’s because bars generally have the best food deals (ex. one bar on avenue B has 10 cent buffalo wings all night).

  4. I am with Terry, I understand where they are going with most of these, but what is the big deal with tire shops? Is that a common location for drug dealing or something along those lines?

  5. Am I the only one who finds it ironic that credit card companies, the greatest Usery proponents on the planet, are attempting to be morality police? Oh paleeeeeeze….

  6. I received an interesting piece of mail over the weekend from a credit card company.

    A month or so ago, I walked into a retail store and made a purchase, using my American Express card. The mail I received was from Discover Card, informing me that had I used their card and some shopping website, I would have saved between 5 and 10% on my purchase.

    So, my question is – how did the Discover Card people get this information?

    Unfortunately for Discover, rather than making me wish I had ‘saved’ money using their site / card, it has rather infuriated me. I will likely end up not using their card at all except for gas purchases as I know I can save 5% at the pump.

    Thanks –

  7. @Beth:
    “A month or so ago, I walked into a retail store and made a purchase, using my American Express card. The mail I received was from Discover Card, informing me that had I used their card and some shopping website, I would have saved between 5 and 10% on my purchase.”

    There is no connection at all. You are linking your visit to store X and your purchase with American Express at Store X with the arrival of some junk mail from Discover Card.

    All they were doing was pushing some promotion at you for some retail store you happened to be in that takes Discover Card. I bet like 5,000,000 other people got that same mail the same day as you.

    The credit card industry sends BILLIONS upon BILLIONS of mail promotions in a given year. It’s inevitable that you’ll get one, even if you never use credit cards at all.

  8. Steve, I think you make an interesting point that perhaps credit card companies can/should exert some preference over what you are doing with the loan they are giving you. But disclosure is key. If they want to charge higher interest rates for things that borrowers are statistically more likely to default on, I have no problem with that I guess. But we all have to be clearly informed.

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