DISQUS

Tom Dziubek · 5 months ago

The one thing I don't get here is that the bias shown by credit card companies doesn't seem to take into consideration that some people may prefer using credit cards in lieu of cash. That could be for a variety of reasons, be it that someone is trying to take advantage of reward options on their card or simply that they don't want to carry cash around with them.

Sam · 5 months ago

So the rule is: Pay cash for all your fun stuff.

katy · 5 months ago

The IRS charges you a fee to pay your taxbill on your credit card. Something like $125 dollars - can anyone verify this? I know it's nominal, but painful nonetheless.

It's much better to make a payment plan with them and mail them a check for a fixed amount once a month.I did that and they accepted it.

And who buys lotto tix with a credit card??? The guy on the corner buying scratch offs has a credit card?

Erik · 5 months ago

The principal behind this is astounding. We are becoming such a "nanny" state. Now credit card companies are monitoring what people spend their money on? Credit card companies need to stop finding new ways to screw over their customers and start serving them. What a concept.

Rob · 5 months ago

I'm not sure that I agree that this is a "nanny state" issue: it's private business (to the degree that the banks are, indeed, "private business" any more), and part of serving their shareholders means ensuring that their assets are going to be repaid. At the end of the day, the money used when you weipe a credit card belongs to the bank (and its shareholders) until it's paid back, and I think they have every right to decide where that money gets spent. If a customer doesn't like a particular bank's policies (which I think should be made public), they're free to find someone who will lend them money for their purchases, and charge them based on the risk.

Yana · 5 months ago

That's interesting and a bit alarming. Since I'm paranoid anyway, I wouldn't dream of giving a credit card to a traffic court or the IRS. I would write checks for those. I buy top quality new tires, but I do shop at Target - not WalMart because we don't have one. Porn or therapy have no place in our expenditures. If I had to choose one, I'd take the porn and pay cash. More worth the money, probably ;) Alcohol is food, bought now and then at the grocery or drug store. We don't borrow money and rarely get cash from a debit card, but we use debit cards as though they are credit cards. I don't think we'd raise red flags with those who want to watch our every move.

Candide · 5 months ago

Call me crazy, but I don't have a problem with any of this. Credit card companies are a business, and a huge part of that business is knowing who is most likely to default on their bills. If they actually have information on this, they should use this. I think there was a NY Times article on just this about 2 months ago.

Matt A · 5 months ago

I'm not sure if this is true in all states, but I know that in Michigan and Indiana you CANNOT buy lotto tickets on your credit (or debit) card. I'm pretty sure this is to prevent theives from using stolen cards to buy lotto tickets, and then cash them in before they're caught.

PK · 5 months ago

Okay since when can you buy lottery tickets on credit cards? It's a cash only system as far as I know. Otherwise you could just buy a ton of tickets with a CC and just hope that you hit a payout large enough to pay the bill!

Flexo · 5 months ago

Matt and PK: In some states you can buy lottery tickets with a credit card. I would have to believe it's not a verry common practice due to the chance of fraud.

Tom Dziubek · 5 months ago

Going back to Flexo's comment in the article where he said he occasionally plays office pools when the payout gets huge. I also heartily endorse this idea, but for for social reasons. I played because not only do you stand a chance (albeit slim) of making mucho bucks, but because if your co-workers hit not only will you be left out of the windfall, you'll also be forced to do all their work when they decide to take an early retirement.

Jim · 5 months ago

Is there valid evidence that credit card companies are actually doing any of this? Or is this just speculation? I don't see anything citing evidence they do any of this and theres a reference to Amex being "accused" of lowering credit limits for shopping at Walmart. Being "accused" of something doesn't mean they do it.

How would a credit card company know i bought retreads? I don't think credit card bills tell the bank what I bought, just how much was spent at the vendor. So a $200 charge from Tire Store, Co. doesn't mean anything.

Flexo · 5 months ago

I'm not familiar enough with how someone would go about buying retreads. Truck stops? As far as AmEx goes, they've admitted the practice in letters to people who have been affected. This article in the Atlanta Journal-Constitution describes one customer's experience.

Manshu · 5 months ago

These are all very interesting points, but my guess is that their weight in the overall score will only be very minute or it will end up distorting it by a lot. Someone shopping at WalMart may just be thrifty and have good spending habits and so placing too much emphasis on that one factor alone will prove detrimental. You could say similar things about the other examples also.

Yana · 5 months ago

I agree, the conclusions can't be accurate by those standards. A good friend of mine buys some of her clothes at Wal-Mart, and is beyond a millionaire. But don't forget that when you have money, you don't have a huge need for credit. You can buy whatever you want, wherever you want.

The Gooroo @ Finance Advisory · 5 months ago

Definitely a great list here. In the past, the one I've seen be the most harmful is definitely the lottery tickets. People get addicted to buying them, and things go downhill from there. Nonetheless, many of the others you've mentioned are also quite harmful to credit.

Charles J Gervasi · 5 months ago

If you don't carry a balance, what do you need a very high credit rating for? The things you mention are probably good policies to follow for our physical / emotional / financial health. It's absurd to do them to improve banks' opinions of us. I would be more concerned about how my colleagues and customers see me than banks. I could not carry any less whether banks agree or disagree with my purchases.

Flexo · 5 months ago

That's a good question, Charles. There are many reasons you should do what you can to maintain a high credit score even if you don't carry a balance. If you need to take out a loan to buy a house, or for a business, your credit score plays a significant role in determining how expensive the loan will be -- or if you qualify at all. If you need to rent an apartment, many landlords will perform a credit check and deny your application if they feel you are risky. Some jobs, particularly those with financial responsibilities, perform credit checks and the employer will refuse to hire you if you otherwise qualify but have a mediocre credit report or score.

Do all these situations apply to everyone? No, but at least one of the above will apply to most people.

Charles J Gervasi · 5 months ago

If true, we've given a lot of power to these people. I am still a little skeptical.

Mortgage - My understanding is if you meet the conforming guidelines at the time, everyone gets the same rate. Some brokers take higher fees and/or put less money toward buying down the rate, but that is not a function of banks scoring you higher/lower.
Other loans - What you say is totally true.
Renting an apartment - It's possible a landlord might make a decision based on a score computed using a secret formula, but what she/he really wants to know is if this person pays his bills as agreed.
Clients / Employers - If you work in an industry where clients select their vendors/employees based on a secret formula, then I suppose you do have to live your life with banks' opinions in mind. A goal should be to get away from these clients and employers because you clients/employers who are concerned with the value you actually provide will ultimately be better.

I totally agree some people are in situations where they need to think about banks' opinion of their lives. Reputation in general matters. But I think banks have somehow managed to inflate the perceived importance of their opinion, as expressed through their proprietary formula, way beyond what it should be. Their formula, by the way, rewards people for using their products. It's based on a) timely loan payments, b) outstanding loan balances, c) amount of time using loans, d) types of loans, and e) number of loans opened/applied for recently; i.e. using their product.

From my point of view, it borders on a scam. I actually doubt they care whether you go to spa or retread your tires. I suspect they just care about people using their products. I may sound paranoid, but it's no worse than someone not going to the spa on account of these people.

Manu · 5 months ago

this is complete BS . lot those merchants might not even be identified by the credit card co software until someone calls the merchant and find out what services/products they are selling .

Flexo · 5 months ago

Manu: Most merchants are categorized when they sign the merchant agreement with their credit card authorization network. Some aren't, but very few. This is how credit cards that offer cash back rewards know whether you're buying something at a grocery store or a gas station -- even a gas station convenience store -- to apply the appropriate level of rewards. It's not a perfect system, but you can be sure the credit card issuers are keeping their customers well-analyzed, at least in aggregate.

Juggler314 · 5 months ago

First off I hate this sort of profiling, but that being said I wonder if it's a simple filter like "pay taxes and you are a bad customer" or if it's something that is evaluated as a whole. I buy absolutely everything with credit cards (and pay in full every month). I really do mean everything...it doesn't seem to have affected my credit rating though.

Charles J Gervasi · 5 months ago

It's the negative sell. "Maybe our product (loans) isn't for you if you do X, Y, or Z." You're supposed to say, "Oh no, I must have more loans."

All they care about is getting people to use their product.

Aarvee · 5 months ago

I doubt the whole article. I know I did few of those thing mentioned and I did not see any change in my rates or credit history.

I shop at Walmart and even cheaper bargain stores (dollar stores, Big Lots, TJ max ect) all the time. I bought alcohol couple of times. I bought this in the actual liquor store not in grocery store.
I paid my wife’s traffic tickets on the credit card couple times.

Nothing has happened.

Having said that, I was actually thinking about this concept of profiling few months ago, for customer protection.
This is how it should work: If a customer never used the card for porn or liquor other “fun” items (say in past 5 years or ever on that card) and suddenly the transaction comes across, then the system should alert you (make a call or SMS, Text some thing) That would be helpful to every one.

Flexo · 5 months ago

Aarvee: I think your idea about alerts is a great idea. I wish more credit card companies offered that service.

As far as what you have seen personally, if you shop at Wal-mart all the time, it's already factored into your credit profile. This article wouldn't apply to you. It would only apply to people who have one pattern of shopping and then suddenly change their pattern.

Tom Dziubek · 5 months ago

Just wanted to let you guys know that I just got done interviewing Dr. Robert Manning (as in 15 minutes ago), about the 2009 Credit CARD Act. Funny thing was that at one point he references this list of harmful credit card purchases and starts talking about it. I mentioned that we did a story about this list, got suspicious, I did a quick scramble to the internet and found out HE was the guy who helped compile the list of items in this Marketplace article that we're all referring to. Go figure. Anyway, you can hear that interview on an upcoming Consumerism Commentary podcast! (plug) (plug)

mapgirl · 5 months ago

People need to understand that credit card companies are some of the best at analyzing behavior through purchase history. There is a reason why you are rewarded for long histories with credit card companies on your FICO score. It's a behavioral indicator. They have built up a phenomenal amount of data on you and can guess a lot of your preferences. For instance, I used to buy only Mobil brand gas in my area code because my parents sold Mobil. I also only flew with USAirways out of three of their hub cities where I or my family lived. All of it is used to target their marketing efforts to stuff you might like to buy. I buy Callaway Golf stuff for my dad for Christmas, next thing you know, I'm getting brochures for vacations in Myrtle Beach. Yes, they are spying on you to sell you things you might want too. Is that ok with you? I think phrased like that, most people are ok with it. (I am not, but that's because I'm weirdly private that way.)

So more than anything, the credit card companies are looking at *changes in behavior* and to understand them. So what if I start buying a lot of Chevron after buying 99% of my gas at Mobil? That probably doesn't say a lot about my changes in fortunes since gas is fungible, but shopping at Wal-Mart after years of shopping at Nieman-Marcus does.

I think it's absolutely ok for companies to analyze your purchase this way to assess credit risk. They expect to be paid back and we all agree buy using cards to be periodically reassessed for our risk level. People are just sensitive to it now because it can represent a catastrophic cut in their limits.

What I do not think is ok, is for the government to ask for this information to go on a fishing expedition for terrorists and criminal behavior. I didn't sign up for that at all. But there are probably other ways of doing data analysis and mining to get those results.

In direct reply to Charles Gervasi's comment "If you don’t carry a balance, what do you need a very high credit rating for?" You need it in ways that have nothing to do with money. My insurance agent recently had to quote me renter's insurance and she flat out told me because I had a very good credit rating she could offer me the best rate available. So yes, having a high credit rating goes beyond your relationship with traditional banking products. This was despite two homeowner insurance claims in 5 years on my condo. Thank my lucky stars that I had a great credit rating or else I might have had to pay a lot more for the insurance.

Charles J Gervasi · 5 months ago

I still think making good money is infinitely more important than carrying out your life in a way calculated to please banks. If banks' preferences don't interfere with you making money and living your life as you please, I can see why it's worthwhile to spend a little effort keeping them happy. My claim is that they have exaggerated their own importance. Some articles confuse pleasing banks with actually being financially successful (i.e. income, net worth, cash flow).

The last time I requested a credit score was about 10 years ago when I was finishing paying off debt I ran up in college. The score was 770. Since then I have not had debt and I have moved a few times, both of which the formula looks down on. I've built up my investments, which the formula doesn't care either way about. I paid off my house, which the formula looks down on. If my goal were to have a high score, I would take out a modest amount of debt on a few loans of different types (mortgage, car loan, etc), pay it off slowly without moving it around from loan to loan, and I would try not to move house frequently and try not to do anything that requests my credit score. I believe this might result in me paying less for insurance. If for some reason I want to be in debt again, maybe I'll try to massage it such a way that it increases my FICO score and saves me money on insurance and other things. Since I don't have a reason to run up debts (I'm not opposed to it. I've done it in the past) at this time, I can't see doing it just to get a better FICO score. This entire thing borders on a hoax perpetrated by banks to get you to buy their products.

Yana · 5 months ago

Charles, I concur that the entire credit system has exaggerated its own importance. I don't use credit, but had fun on CreditKarma finding out our scores of 638 for me and 758 for my husband. I like them looking good, but they haven't yet served a practical purpose.