Financial Profiling: A New Technique Of Cutting Credit Limit

Just think over that as you have been consulting with a consultant and paying his fee with your credit card or for example, if you use your credit card to pay to retread your tire, the bank may draw the conclusion that you are, or are about to be, in financial distress and consequently adjust or withdraw your credit limit. Think your application for a loan has been rejected because of your affiliation with property consultant or any mortgaging company. Again just think that your credit card provider decrease your credit limit just because you shop at the same place where people who have bad credit history come to shop as well.


The Figure (Above) Gives Us An Insight Of Financial Profiling

You Are Welcome to Financial Profiling or Behavioral scoring.

Take an example A family used to do shopping using American express card regularly, they shop for around $5,000 in a month and usually paid the full amount back. You’ll be shocked to know that their credit limit lowered about 75% of the original credit limit. This is a live example of victims of financial profiling despite the fact that they didn’t make anything wrong. The bank indirectly impacts their credit rating by reducing the ratio of in-use to available credit.

Consumers also find no opportunity for recourse. Individuals are not given justification for the reduction of their credit limit and often report difficulties in contacting the bank to negotiate a resolution.

Financial Profiling

Financial profiling is a new method used by financial institutions, which identifies the consumers who are credit risk. Usually it works by analyzing spending habits. Particularly where the card holder shops

While financial profiling is official, it is establishing to draw the attention of financial regulators. In 2008, the U.S. Federal Trade Commission, FTC, filed proceedings against Compucredit for neglecting to disclose the use of financial profiling to its customers.

American Express Scandal

ABC News reported that Kevin Johnson, a public relations consultant in Atlanta with an excellent credit rating, had the limit on his American Express Blue reduced from $10,800 to $3,800 for spending at the same stores as customers who “have a poor repayment history with American Express”

American Express spokesman Michael O’Neill acknowledges that people’s spending habits are taken into consideration, especially when they appear to be similar to the habits of problem customers. While those similarities alone aren’t enough to justify a spending limit, says O’Neill, “If they’re spending in a way that looks like a pattern of other people who had credit trouble before them, it gets added into the mix.”

What To Do??…In-case You Think You Are Hit By Behavioral Scoring

If you believe you’ve been the victim of financial profiling, contact your financial institution and seek additional information on the justification for the credit limit decrease. If you’re not satisfied with their response, you can refer the matter to the Financial Services Ombudsman

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