Credit Card Profiling (Behavioral Modeling)
Do you know your credit card company profile’s you to determine your future credit risk based on your current spending habits? They called it behavioral modeling. Using complicated formulas credit card insurers track and study your purchases to determine your credit risk and credit limits.
Purchases that can lower your credit score include:
- Bar tabs – may indicate you enjoy the social scene or drowning your sorrows
- Pawnshop, thrift store – may indicate your are experiencing financial problems
- Casino or racetrack – may indicate you are a gambler and is at risk of missing payments
- Marriage counseling – may indicate you are under domestic stress and possible future financial stress
- Doctor’s office – may indicate you are not in good health and therefore could be a credit risk
On the flip side purchases can increase your credit score which include:
- Car maintenance and hardware store – may indicate you are responsible in taking care of your assets
- Airplane tickets and hotel – may indicate you have money for extras like vacations
- Doctor’s co-pays – may indicate you are still employed and have health insurance
Due to the recent recession with many people unemployed and/or facing foreclosures, credit card issuers are looking very closely at their customers to determine who is at risk to miss payments. Residents of states with high foreclosures rates, such as Nevada, California and Texas are considered higher credit risks.
In May 2009 President Obama signed into law Credit Reform. A part of the legislation directed federal regulators to examine how credit card issuers are using customer information to determine credit limits and credit scores. Additionally, a report is due next month reporting the affect of credit profiling effect on minority and low-income credit card holders.
Experts believe that cardholders who want to avoid credit score declines should use prepaid debit cards, gift cards or cash.
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