Another thing I didn’t know about credit cards

I just caught up reading this month’s issue of Money Magazine. They had a quick little blurb called “What not to buy on credit.” It turns out that credit card companies are doing a bit of actuarial research and have discovered that they can identify credit risks in some non-traditional ways: where you shop.

According to the article some major credit card issuers “now factor in where people use their cards when making decisions to cancel credit lines or slash spending limits.”

Things you shouldn’t buy on credit

The credit card companies aren’t offering the information and won’t indicate which types of establishments cause the black marks. Thanks to Money Magazine we do know a few of places to use cash (actually most of them should probably be avoided altogether) rather than credit cards. Money Mag uncovered a lawsuit that showed a Creditor who dinged their cardholders for making purchases at bars, nightclubs, billiard halls, and oddly enough marriage counselors.

I understand that they are trying to minimize their risk, but do you think they are taking it too far by hitting those who need marriage counseling?

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  1. That doesn’t surprise me much. Especially the factors they’re looking for…

    If the credit card companies think purchases for these things is a high risk to them, what do you think it should be telling us? (The Bible already tells us this anyway…) If you spend a lot in bars and nightclubs, maybe you should consider what that behavior is doing to your entire situation.

    I think they should be open about it, but I can’t blame them for trying to minimize their risk. As far as marriage counseling goes, I can see them feeling threatened if a credit card holder needs counseling. On the other hand, they should be happy that the couple is trying to work things out. I would think that makes them more likely to pay their bills and honor their contract.

  2. Gholmes

    To take a phrase from George Orwell’s novel, 1984, “Big brother is watching”. The Money Magazine’s article is another reason to use cash.

  3. Doug

    They can also tell if you donated money to the McCain or Obama campaign and cut your credit lines accordingly…..

    They can also tell which place of religious worship you are charging money to and cut your lines accordingly too.

  4. Matt

    I don’t have a problem with it. Credit Card companies are free to do whatever they wish and individuals are free to use or not use that company’s credit card.

  5. bob

    you make a good point – aside from what the Bible says about it, if the CC companies realize that is this person does X & Y that they are less likely to be able to pay their bills – maybe it should dawn on that person that doing X & Y really isn’t going to put them in a better position. I guess that is obvious, I just hadn’t thought about it that way…

    I remember reading that book in high-school and it is scary how prophetic elements of it have been

  6. Emily

    Yikes, that is frightening! I agree with Gholmes — this kind of is like Big Brother. Since they are the ones who grant you credit, it makes since that they want to make sure they’re lending to responsible people, but monitoring day-to-day expenses and cutting you off for attending marriage counseling? I think that’s taking it a little too far.

  7. Nicki

    Doesn’t surprise me either. Yes, I think that’s going too far.

  8. Jon Kepler

    Some may think it’s going too far, but as long as they can prove the behavior correlates with higher default rates in a random sampling, they can probably dodge a lawsuit.

    Men have tried to sue over increased auto insurance costs when compared to women. They lose.

  9. poor boomer

    Matt said:

    “I don’t have a problem with it. Credit Card companies are free to do whatever they wish and individuals are free to use or not use that company’s credit card.”

    Fair enough, all I ask is that they do so transparently. That way, consumers would be able to make informed choices regarding what credit cards to use and where to use them.

  10. Peter

    Just cut up the credit cards, and the whole issue is avoided!

  11. bob

    good point 🙂

  12. Jon Kepler

    Peter, I know you mean well, but I’m sorry to say that’s not good advice. Credit cards should only be avoided if you can pay cash for everything, and I mean EVERYTHING. House included. Medical bills included. There are people out there who have $50,000-$80,000 ready to go towards a home, but they can’t get a mortgage because they’ve avoided credit cards and have a shallow credit history. Don’t be one of them.

    Also, the alternative to credit cards for your day to day spending isn’t cash (cash irritates everyone), it’s a charge card. If paying $250-$1000+ annually for a charge card works for you – great, but most people would rather take the free credit card with the credit line attached.

    If you’re worth more than $4 million dollars or so, feel free to ignore my advice above and do whatever you want. 🙂

  13. Gholmes

    @John Kepler
    Peter is dead on. Coming up to 2 years of using no credit cards. I rent cars for work, travel all with no trouble. I definitely wish I was worth $4 million. My goal is to have a FICO score of 0. When/if I go to invest in more real estate I will find a lender who looks at my balance sheet not just the FICO score.

  14. The Happy Rock

    Doesn’t surprise me in the least. The correlation data is probably very interesting and thought provoking, but this smells borderline lawsuitish.

    Thanks for the info.

  15. Jon Kepler

    Gholmes, I’m glad that staying away from credit cards has worked for you. Do you have a charge card? Some restaurants will actually refuse your reservation if you don’t have a credit card or charge card.

  16. Gholmes

    @Jon Kepler – No credit card for 18 months now and rely on a debit card. This article Bob writes about gets me wondering how much my debit history is being tracked and by whom.

  17. Linda

    I think the go is the debit card – you still have access to everything but you are not getting further into debt. Not sure how all this affects credit rating but hopefully the banks can look at how you have saved and spent your money. Wisely.