Financial Profiling

Your credit card company can be said to be creating your financial profile when it makes a major decision such as lowering your credit limit simply because of your career or the way you spend your money. For instance, if you use your credit card often at WalMart or at a dollar store, your credit card company might feel that this is reason enough to lower your credit limit. Financial profiling on the part of creditors is therefore a nightmare for many people.

Here are a few more examples at what financial profiling can do to your credit. Your credit card company might suddenly lower your credit limit just because you happen to shop at a place where people with poor credit scores usually shop. Or your creditor might feel that you are in financial mire just because you visited a financial consultant and used your credit card to pay the fees. Or, if your family makes purchases worth $5000 on your credit card, which you pay back in full every month, you might be shocked to learn that your credit limit has been reduced for apparently no reason. This is because the creditors did some financial profiling you cannot agree with.

Financial profiling is a brand new concept developed by financial institutions to identify high-risk customers. Financial institutions analyze consumers’ spending habits to create financial profiles and draw conclusions. While it seems to work to a certain extent, it is just a nightmare for customers who just like to shop where they shop. An ABC news report about Kevin Johnson, an Atlanta-based public relations consultant with an excellent credit score, is worth mentioning. Johnson, who held an American Express card, was shocked when his credit limit was reduced to $3,800 from $10,000 just because he shopped at places where people who usually made late payments to American Express also shopped.

Speaking about financial profiling, Michael O’Neill, the spokesman for American Express, said that credit companies do consider people’s spending habits while drawing up their financial profiles especially when those habits are similar to those of people with poor credit histories. Obviously, this doesn’t work as a number of people with excellent credit ratings have been hard hit.

Amex is not the only company guilty of taking financial profiling a bit too far. CompuCredit had lowered the credit limits of card holders who used their cards to pay for the services of personal or marriage counsellors, visited bars, or got their cars repaired on their credit cards. What’s more, CompuCredit refused to inform customers about their brand new system of financial profiling, owing to which the Federal Trade Commission (FTC) slapped a law suit on it.

Since financial profiling is being done by many financial companies, you must keep a sharp eye on your credit limit. If it wavers even so slightly, demand to know the reason for it. If your credit card company has lowered your credit limit for no apparent reason, stop doing business with them or approach the Financial Services Ombudsman.