Is Consumer Profiling Affecting Your Credit Cards?

Did your credit cards change in the past three years? Did your interest rate go up? Did your cards get canceled or your credit limit decrease? Of course this happens all of the time to people who are late on their payments or otherwise fail to meet their credit card terms and agreements. However, there may also be another factor at play in your credit card changes. The places where you choose to shop and the things that you opt to buy could cause credit card companies to look unfavorably upon you. It’s called credit card consumer profiling and it’s been happening for years.

Report on credit card consumer profiling

The Board of Governors of the Federal Reserve System has issued a 70+ page report regarding the use of consumer profiling to make changes to customers’ credit lines. What the report found is that in the three-year period that was studied, five out of six of the largest banks engaged in consumer profiling that had a negative impact on their customers’ credit.

Examples of credit card consumer profiling

So what exactly is this consumer profiling? It’s the use of information about your shopping and loan habits to make assumptions about your ability to continue making payments on your credit card loans. Examples of how you might mistakenly be negatively profiled and therefore have your credit cut include:

• You become consistently more frugal. You used to shop at high-end department stores and now you’ve realized that you can get the same designer dresses at thrift stores for a fraction of the cost. You used to believe that pawn shops were for criminals but you now know that you can get good deals on items that you need there. This switch to shopping at lower-end retailers than what you used to is probably just a choice to be a more sensible spender. However it could trigger a change in your credit cards.
• You start transferring balances and taking out cash advances. If the types of transactions that you use your credit cards for changes, you might find yourself with less credit available thanks to a cut. Maybe you’re just getting some great deals that make financial sense but these types of credit card transactions can be a warning signs to the credit card companies.
• You buy a new home and decide to work with a low-end mortgage lender. That’s right; who you opt to get your personal loans from can actually affect the existing credit that you have with credit card companies.

Is profiling a big deal?

Credit card companies say that this type of profiling isn’t a big deal. They insist that they use a variety of other information to make decisions about changing a customers’ rates. And they report that the percentage of people affected by profiling is small. However, every time that profiling is used to make decisions about groups of people, risks are taken. If your existing credit can be affected by the types of people that generally shop in the stores where you are now shopping then there’s something going on in society that seems a little bit fishy.

Is consumer profiling going to continue?

The report to Congress was issued because of government concerns about the impact of this type of consumer profiling. It is unclear at this point if the report will cause any changes in these practices. Widespread termination of the practices that allow for consumer profiling isn’t likely. That’s because the same tools used to do this profiling are the ones used to monitor accounts for fraud, a practice that we need in order to prevent personal credit problems due to identity theft. However, some of the banks that were part of the study have said that they will discontinue consideration of consumer profiling in their decisions about their customers’ credit.