Monday, September 28, 2009

How credit cards lower limits based on card-use locations, driving down FICO scores


Today, on "American Morning", CNN reported on the practice of credit card companies, especially American Express, of lowering credit limits on “responsibly paying” customers (on time) -- even those with good FICO scores -- if there are sudden changes in patterns in where they shop and use their cards. AE told one customer that his limit had been lowered fro, $10000 to $3800 because other customers of the businesses he frequents have poor payment histories. Gerri Willis appeared, and explained that if a customer who usually shops at high-end stores suddenly starts using Wal-Mart a lot, that is a signal to the credit card company of possible impending or realized job loss. The sudden appearance of bar tabs on cards is a red flag.

Others on CNN called the practice outrageous, to penalize good customers for what others do. But isn’t that how insurance works? May credit limits will work that way too.

Lowering of credit limit can lower FICO score and cause other credit card companies to lower limits in a chain reaction, resulting in a lower FICO score.

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