The Borrowers
Credit card use is ripe for data mining
These days, credit card companies are taking plastic away from a lot of consumers. To figure out whose credit to cut, companies look at where you live, where you shop, and what you buy. Stacey Vanek-Smith reports on data profiling.
Robert Grossman, director for the National Center for Data Mining in Chicago, creates behavioral models at his company, Open Data Group. (Stacey Vanek-Smith / Marketplace)
More on Spending
At Open Data Group a profiler develops models that look at what people have done and predict what they will do. Data analytics has become a $25 billion-dollar-a-year industry.
TEXT OF STORY
STEVE CHIOTAKIS: Back when the economy was booming, it seemed like card companies -- credit card companies -- were pushing a lot credit. Today, not so much. A lot of declines, interest rate hikes and credit-line reductions. So why, and most importantly how, do they do it? It seems the card companies are looking at a lot of data these days: where we live, where we shop, what we buy. It's called data profiling. And there's a lot of it going on. Marketplace's Stacey Vanek Smith reports.
STACEY VANEK-SMITH: When Kevin Johnson got back from his honeymoon in Jamaica last October, he had a letter from American Express. It seems, that honeymoon was over, too. AmEx was slashing Johnson's credit limit by 60 percent. Not because he'd missed a payment or had bad credit. The letter said:
Letter from American Express: Other customers who have used their card at establishments where you recently shopped, have a poor repayment history with American Express.
AmEx didn't like where Johnson was shopping.
KEVIN JOHNSON: When I reached out to American Express, I couldn't get a clear answer. And so that's how the journey began.
Johnson started a Web site called: NewCreditRules.com. Consumers compare notes online to figure out their credit got cut. Johnson thinks he got nailed for shopping at Wal-Mart. AmEx denies that, but says it does track how customers use their cards. All of the card companies do it. It's called data mining. Robert Grossman is the Director of the National Center for Data Mining.
ROBERT GROSSMAN: Data mining uses data to make predictions, oftentimes about what people will do, what will happen, etc.
Grossman says the companies use intricate behavioral models.
GROSSMAN: If you have traditionally shopped at a particular type of store for the last 20 years and you're suddenly there's a huge change in your behavior, there's probably a reason.
Other behaviors card companies may see as warning signs? Using your card at a bar, to get your tires retreaded, getting a cash advance. Card companies also buy information on other parts of your financial life. One of the biggest data-sellers is Equifax. Tom Madison manages mortgage services for the company.
Tim Madison: Lately, the demand for that data has grown considerably. It's really becoming an extremely hot commodity.
Madison says banks want more information and fresher information than ever. Business is up 50 percent over last year. Meanwhile, visitors to Kevin Johnson's site claim they've gotten their credit cut for using their cards at places like Quiznos, Exxon and McDonalds. His advice:
JOHNSON: Watch where you shop and what you purchase. And when you're in doubt? Use cash.
I'm Stacey Vanek-Smith for Marketplace.
Comments
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From NH, 08/14/2009
This happened to me too. I had a $10,000 line, and they cut me to $2,000 for shopping at Walmart. I transferred my balance to another one and ditched them. I never intended to use the full line, but it's the principal of the thing.
From Canton, GA, 07/21/2009
This happened to my husband and I recently. I had heard about this on CNN before we got our letter. So, I called my husband to tell him that he needed to call AMEX and check into whether we were going to be hit or not. Sure enough, he called and the guy on the phone gave him the run around about it. Because I had given my husband details about it, he was able to catch the guy basically lying to him about why our credit limit was cut. Essentially, like everyone else in this boat, AMEX was judging us by others in our area that shopped at the same store, regardless of the fact that we paid our bills on time and always paid more than minimums. So, we took out a fixed rate personal loan and transferred the balance of the AMEX to the personal loan. They have lost our business until they change their ways. It is absolutely WRONG that they could even do that.
From Cleveland, GA, 07/13/2009
Profile me all you want but use better metrics. I live in a rural community. The ONLY place to purchase basic stuff such as socks is Walmart. And I have to drive to the next county to do it! Why would your pay more somewhere else anyway? Husband got a good job - AE and Visa lowered our limits and raised the interest rate. Poor execution of Profiling. Our solution. They are both losing our business including the fees for that nice vacation to Las Vegas. Treat me badly, I'll find someone who wont.
07/11/2009
If all is fair in love and war, these companies won't mind if I get my own shrink and profile their personal lives!! I'll decide if I should talk to them or have them use strictly email. I can't want for the shoe to be on the other foot. We've got options as consumers even with the credit cards we choose and this is going to be one more hard crash for AmExpress & other companies.
When this depression gets back to "normal" and they are looking to get some of their old customers back, and can't wait to see the looks on their faces when they realize, they don't have any "old" customers . . . just themselves!!
From Burbank, CA, 07/09/2009
credit card companies should only be allowed to "restrict card use" or "cancel the card" or "reduce credit limits" if there be a breach of contract of any degree in repaying. This criteria can become as strict as, for example, "one single missed payment" for reducing limits or cancelling card. Don't you(any one)think it is absolutely FAIR?
From Los Angeles, CA, 07/01/2009
Self Fulfilling Prophecy
Data mining is a powerful tool. The banks who use it based on current spending patterns must be astonished by the accuracy of the predictions that result from the analysis. Simply put, cutting the amount of available credit by one credit card issuer results in a cut in the customer’s credit score as the credit score is based in large part on the ratio of debt to credit limit. As the customer’s credit score falls, other lending institutions cut their exposure to the customer and the cycle continues. In this case the forecast of high credit risk is the catalyst that creates the illusion of high credit risk. It looks like American Express is trying to get rid of some of its customers.
Jim
From Los Angeles, CA, 07/01/2009
Self Fulfilling Prophecy
Data mining is a powerful tool. The banks who use it based on current spending patterns must be astonished by the accuracy of the predictions that result from the analysis. Simply put, cutting the amount of available credit by one credit card issuer results in a cut in the customer’s credit score as the credit score is based in large part on the ratio of debt to credit limit. As the customer’s credit score falls, other lending institutions cut their exposure to the customer and the cycle continues. In this case the forecast of high credit risk is the catalyst that creates the illusion of high credit risk. It looks like American Express is trying to get rid of some of its customers.
Jim
From Boise, ID, 07/01/2009
Pay attention, consumers. ALL the credit card companies use data mining, not just American Express. I gave up credit cards 3 years ago and sleep much better at night. For online purchases, I use a debit card.
From Park City, UT, 07/01/2009
Equifax and Experiean profit by selling your personal information. If we consumers were recording artists or actors, use of our personal information which we own, they would have to pay us royalties. Why don't we start charging these companies to release our personal information billing it to them as royalty fees. That would in essence put a stop to these practices by the credit card companies.
Why don't we all band together, start the process by writing your Senator and Congressman or woman and ask them to create a bill whereby the credit reporting agencies first must have your consent to release information and second pay you a portion of the fees they collect to you as a royalty payment. We have the ability to change the system.
07/01/2009
It's not necessarily a bad thing if your credit limit gets cut. In fact, it's almost always good for your financial health to minimize your consumer debt.
From St. Paul, MN, 07/01/2009
Simple solution - drop the AE card and use VISA or MasterCard. They work just as well, or better, and you can find them for no annual fee.
From Miami, FL, 07/01/2009
Just don't use credit cards! I cut my carts up years ago. There is life after credit cards.
From Hebron, KY, 07/01/2009
I use my credit card because I don't feel comfortable walking around with cash. Plus you can't use cash on-line. So maybe the way to beat the market researchers is to confound their stereotypes about what types of people by what types of products. How? Go out and buy a classical music CD and then go into 7-Eleven and pick up a bottle of Nighttrain.
From Auburn Hills, MI, 07/01/2009
As I read the letter to Kevin Johnson about his credit, I noted that the "where-you-shop" factor was the 3rd point in the explanation. The report would have been better if all reasons were mentioned. The credit card companies ARE UNFAIR, but the whole story should have been reported.
From Centerville, OH, 07/01/2009
I believe Kevin Johnson, is correct to call out the banks AND credit reporter.
They control our lives and financial futures, and Laugh outloud. Look how we made them jump thru hoops, and still we will denied even though we planned to refuse their application, FreeCredit Report.com IS A JOKE!
I spent two years with a lawfirm to improve my credit report with All three credit companys, with piles of errors,
after this my credit score climbed into 700's, but just one application for a home refinance, my score dropped 685!!
Gee know I am able to get DUH a higher interest rate, etc. because of Banking!
CAPITAL ONE, is the worst place, funny commercials, yes, but they turn us into the joke, promise a credit level, then give a low ($200) level, shop one time, and the bill shows up over balance, WHY?
because 45.00 dinner, 50.00 acctivation ffee, 50.00 yearly membership, 25.00 late payment, not even 30 days, so they aalso added an over the balance fee! I
wanted to close the account right away,
but they would not close it unless paid
in full right then over the phone. NO
So here sits Equifax manager Tom Madison
rubbing his hand, Gee, there is a demand for this data, wow, what a hot commodity. What would we like if our family doctor sat and said Wow, I have a hot commodity for the insurance life company! Gee he gets rich, and I get denied coverage, because of medicine or treatment, could show family history,
This is not cool, Mr. Madison was given a trust of private information, NOT a hot commodity. Government should correct this pattern of greed.
william earnest
From Griggsville, IL, 07/01/2009
Obviously AmEx et al. would prefer that consumers rely on high interest rate private label cards for people who get their tires retreaded at Firestone. I imagine that somewhere under the covers is a lender who can get higher returns from backing the private label cards than from AmEx.
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