Yesterday I posted about American Express data-mining their cardholder's shopping habits in order to determine who might be at risk of defaulting, and cut their credit lines. The comment thread has gotten quite lively, with commenters variously arguing that it's unfair to use a black-box correlation matrix that the consumer can't manipulate, that the risk of Type II error is quite high, that credit card companies have as much income as they need from your income and payment history, that this violates privacy concerns.
I think there's some misunderstanding about what the card companies are trying to do when they do this kind of data-mining: why they trim your credit card limits when your shopping patterns change, or raise your rates when you're late on another card but current on theirs. They do these things because they can (or so the card companies believe) be reliable indicators of someone in financial distress.
A common pattern before bankruptcy is to run all your cards up to the limit, using cash advances and balance transfers to kite the payments until you can't keep the thing going, and then file. American Express is, quite sensibly, worried that more people will be doing this over the next few years. (And in a few of the comments, I detect a certain panic at the thought of having this option shut off).
By the time you are a cardholder for a while, American Express has only one piece of information about you: your payment history. But as the fine print on the financial statements always says, "Past performance no guarantee of future results"--especially in this environment. They don't know whether you've lost your job, or gotten divorced, or gotten into a nasty car accident. That's why they're mining the data; right now, the information asymmetry runs heavily in favor of the cardholder.
It is true that there will be false positives, and that some people will suffer a minor ding to their FICO score because their outstanding balance will now be an unsatisfactorily high percentage of their current credit limit. But this damage is easily rectified by paying down some of the balance. If you can't pay down your balance to below 50% of your credit limit, then you have no business borrowing any more money, which is the only reason this temporary decrease would hurt you.
There's also a hidden assumption that if American Express can't do this sort of data mining, they won't be able to reduce the credit limits of people who frequent divorce lawyers and Monster.com. But the credit card companies are well aware that they face massive exposure to losss on people using credit to ride out the downturn. If you deny them the ability to fine-tune their credit management, they will simply use blunter instruments, like cutting the credit limits of everyone below a certain income, or whose card is new, or whose job application listed a risky occupation like, er, journalist.
Copyright © 2009 by The Atlantic Monthly Group. All rights reserved.
My argument is not that this behavior is somehow immoral, but that, in the case of wall mart shopping, it isn't very effective. Aren't there better indicators of a persons financial health?
The safest thing for a lending company to do, in order to reduce its exposure to risk, is to stop lending money. That shields them from the losses, and also from any possible profits.
If I was to receive a notice that my credit limit was reduced because of something like this, while I felt that my financial situation was fine, I would be canceling my card, and it would be a long long time before I would consider getting another from the same lender. After all there are many others offering the same service.
Speaking as a major Walmart shopper, I agree with AMEX. Their brand is incompatible with Walmart. A toney Amex card holder who begins slumming it at Walmart would be high on my list of potential defaultees.
Shopping at Walmart can be a sign of financial health. People who pay for "atmosphere", attention or appearance, don't go to Walmart. People who trade minimum money for identical goods do.
Giving up the AMEX card, then shopping Walmart,would be an even better indication of financial sanity.
It is a long thread. I'm not sure I would call it lively. What I find interesting in the long thread is the absence of the Wal-Mart derangement syndrome. Few, if any, commenters seems to think the issue is the evil of Wal-Mart.
Psittakos, WDS may go into remission during recessions.
I wonder if AMEX is gaming WalMart a bit for pushing WalMart brand Discover™ cards so hard?
Is that 50% mark on a card a real distinction, or one that you're using for the sake of argument?\
/has been desperately reducing his debt as the crisis has gotten worse.
Yes: one of the fastest ways to improve your credit score (assuming you're already making your minimum payments on time) is to reduce the balance on each card below the 50% limit. Or so I am informed by people who are supposed to know.
Thanks Megan. I just got below 50% on my high-interest rate card, and was debating whether I should bring my low-interest card down too, or wait until the monthly payments for that card exceeded the high interest one, but if that's a metric, I'll think about shifting.
"Is that 50% mark on a card a real distinction, or one that you're using for the sake of argument?"
A decent part of FICO is your percentage of used credit to available credit. As far as I know, under 30% is good, and over 50% is bad, but I'm not sure whether it's a sliding scale or exact cutoffs. You really don't want to be close to your max though. That was one of the big reasons why people had a problem with AmEx cutting limits: if it changes that ratio to a different category, that could well effect other things outside of your AmEx account.
Megan, my issue with data mining is what data AmEx is mining. If it's theirs -- meaning the payments you make with an AmEx card, great. I don't even mind if it's all your credit data.
But there's an awful lot of other data out there. If they're using that, (and they likely are,) I have a few serious concerns. There are some privacy issues involved that need to be carefully explored.
The problem is, we don't know what data they're using, who collected it, who sold it, and how accurate it is.
What we do know is that there's a tremendous amount of information to mine.
What I don't understand is why people don't do the obvious, if they're so upset about AMEX's policy: cancel the card! It's not like, even in this market, there's a shortage of companies offering credit cards.
And really, who uses AMEX anyway?
"What I don't understand is why people don't do the obvious, if they're so upset about AMEX's policy: cancel the card!"
In large numbers, they apparently are doing this, based on the thread. The issue with that is that cancelling an account also lowers your credit score (and another hit if it was your longest-open account). So, there are situations in which AmEx's decision based on your shopping patterns lowers your score without recourse.
The other issue is that AMEX by all indications appears to be doing large amounts of damage control/spin on this issue, presumably because they think the more people that know what they're doing, the more people will cancel. If they made it quite clear to all their customers what they were doing and let the customers decide whether to keep doing business, I think that'd be pretty widely accepted, but they appear to just be trying to hide it while still using those factors.
In the past few months I've seen several people declare bankruptcy because their credit card companies jacked the rate up on them with little or no provocation that they could see.
So AMEX cuts your limit because you shop at Wal-mart, all your other credit cards jack your rate because your credit score just dropped, and boom, you just got pushed from teetering on the edge into the abyss.
I have to wonder if the credit card companies aren't being penny wise and pound foolish. Even accepting that shopping at Wal-Mart is a sign of financial distress, is it wise to make sure that they are in financial distress?
What's a "Type II error"?
The wiki article on FICO says that their breakdown is
* 35% — punctuality of payment in the past (only includes payments later than 30 days past due)
* 30% — the amount of debt, expressed as the ratio of current revolving debt (credit card balances, etc.) to total available revolving credit (credit limits)
* 15% — length of credit history
* 10% — types of credit used (installment, revolving, consumer finance)
* 10% — recent search for credit and/or amount of credit obtained recently
http://en.wikipedia.org/wiki/Credit_score_(United_States)
Megan writes: "one of the fastest ways to improve your credit score (assuming you're already making your minimum payments on time) is to reduce the balance on each card below the 50% limit."
I can vouch for this. I went from 60% to 10% and my FICO jumped from 660 to 740. Sadly, the debt is creeping back up. I'm at around 40% now and the FICO is in the low 700's.
So, what's to prevent AmEx from engaging in de-facto racial profiling? This sounds like a discrimination lawsuit waiting to happen. Would they be forced to reveal their heuristics in discovery? If so, that sounds like even more lawsuits to me... class action perhaps.
I don't think there is much cause to get too exercised over this type of thing. These types of policies will live or die by their effectiveness. If it is arbitrary or unduly harsh it will cost Amex customers and money without improving its default risk posture. In this situation that has started the kerfuffle, the model is almost certainly far more nuanced and reasonable than "shop at walmart and get your credit limit reduced", which would indeed be pretty arbitrary.
That's all well and good, Megan, but correct me if I'm wrong, the discussion yesterday wasn't whether or not it was a good idea for Amex to ding you if you were carrying a high balance. The discussion was about them allegedly lowering someone's credit limit because he apparently started shopping at WalMart in spite of the fact that he had a good credit history.
I think that I'm the person who was most concerned about false positives and I didn't say a thing about red-flagging people with high balances.
My concern is the use of correlating software that attempts to match patterns of behavior to defaults. As I pointed out, this is essentially the same sort of algorithm that TiVo uses to give you programming recommendations (and Amazon to give you book recommendations, etc).
As I pointed out, this type of software is notorious for generating false positives based on spurious correlations (which is why your TiVo thinks you're gay) and I think that this is, in fact, a genuine concern for the consumer whose credit may be harmed for no good reason.
As you note, everyone knows that keeping your credit below 50% is a good idea and the consumer can make an informed decision about their spending on that basis. By contrast, no one knows whether or not shopping at a given merchant will set off an expert system that's just trying to match arbitrary spending patterns to defaults.
That said, I've had more than my fill of this discussion yesterday. If someone else wants to carry the ball, be my guest.
Megan, you'll be fine. You're not a journalist.
Can we go back to deleting the obviously inflammatory comments please?
Part of the problem is that the left-wing whiners in the original comment thread don't understand that Amex doing this is not "punishment." If it were punishment, then it would make sense and be "fair" to tell people in advance so that they could avoid being punished. But since Amex is using whatever it's using as a predictor, it makes no sense to do so. Doing so would just allow consumers to trick Amex.
What's a "Type II error"?
A type II error is when a statistical test misses a difference that is actually present, commonly called a false negative. In this case it would be letting someone who is a bad credit risk continue on without lowering their credit.
I suspect what Megan (or the commenter--I haven't read all the comments in the original thread) meant was Type I error, which in this case would be when the statistical test (i.e. the data mining done by AmEx) indicates that someone is a bad credit risk, when they actually are not. Otherwise called a false positive.
False positives are a significant issue for this sort of data mining because if you have a relatively low-frequency event (like an impending bankruptcy), and you run your test on an entire population, it's quite possible that a positive result is more likely to be a false positive than a true positive. See Bayes Law for more detail.
Depending on the consequences of a false positive, a way to handle this is is to ensure that the algorithms will only flag positives for further follow-up and then a human or alternate method of evaluation will be used to review the accuracy of the assessment. (This is what we're assured that the NSA does with all the wiretapped phone call data they have). It would not surprise me that AmEx is not doing this.
I did think that the credit crisis, as it applied to individuals not businesses, was mainly a matter of poor credit individuals getting shut off. No longer. I applied for a new card just before Christmas (it offered a couple of useful perks my current card does not). I have a Fico score ~750 (depending on which credit bureau you ask), an upper middle class income and no outstanding debt other than my car loan, soon to be paid off. The card brochure advertized up to a 10K credit line. For whom I wonder? Because when the card came they gave me just a $500 credit line. At this point I have to agree with those who think the banks are going too far in the opposite direction.
TW_Andrews: Thank you posting the explanation of Type II errors (though I wasn't the one who asked and I could have looked it up). That is why I much prefer people just say "false positive" or, even better, "unwise loan". After all, the assignment of the number 1 to positive and 2 to negative (or whatever it is) is completely arbitrary. And since that makes it so apparently easy to get mixed up, and you're going to have to infer the meaning from context anyway, one might as well use something more helpful when speaking about this.
Could someone explain to me the roots of the association between AmEx and high-end retailers? Honestly, I thought the main part of AmEx folk image was that they would give the card to anybody with pulse (and maybe to some without). I cite Hitchhiker's Guide in support; also my own experience when I was a fresh immigrant. What makes AmEx upper-class, pray tell me?
Personally I do use one -- the only option at Costco, plus high cashbacks in the restaurants -- but somehow I always feel inferior when I do ;-)
If you can't pay down your balance to below 50% of your credit limit, then you have no business borrowing any more money, which is the only reason this temporary decrease would hurt you.
Given the extensive influence of credit scores on our non-credit lives - employment, utilities, getting an iPhone, getting insurance - I don't know how you can say that.
It's not hard to imagine your employer, for instance, seeing the hit to your credit because AMEX drops you for shopping at WalMart, and saying "sorry, we have to let you go; you work with sensitive data and you can't pass our credit tests, so we have concerns that you're more likely to take a bribe."
All thanks to the rich, rich data gold mine. There are serious concerns about AMEX taking this sort of automated, human-decision-free action and its commensurate effects on the rest of your life, often in places that have nothing to do with getting loans.
If you trace back to the original article & postings by Kevin Johnson, it never definitively says that shopping at WalMart was the reason for the credit reduction. He lists all the businesses he had Amex charges with in the past year; WalMart was one of many. He seems to be guessing that it was WalMart vs. Geisha House or Island Romance.
ken magalnik wrote: The safest thing for a lending company to do, in order to reduce its exposure to risk, is to stop lending money. That shields them from the losses, and also from any possible profits.
You mean like reducing credit limits?
ken magalnik later wrote: If I was to receive a notice that my credit limit was reduced because of something like this, while I felt that my financial situation was fine, I would be canceling my card, and it would be a long long time before I would consider getting another from the same lender. After all there are many others offering the same service.
So they should reduce their lending exposure to everyone except you? I don't get it.
Psittakos wrote: It is a long thread. I'm not sure I would call it lively. What I find interesting in the long thread is the absence of the Wal-Mart derangement syndrome. Few, if any, commenters seems to think the issue is the evil of Wal-Mart.
Possibly because a good many of the haters are suddenly finding it convenient to shop at Wal-Mart, methinks.
aMouseforallSeasons: or perhaps, like me, they live in a place where alternatives to shopping at Wal-Mart are thin on the ground. Good ol' Wal-Mart drove the nearby competitors out of business, and the alternatives are another 30 miles+ away.
In this time of credit panic, the card providers are being a bit dyslectic. Whether AMEX is being this way or applying reason is to be seen.
Several banks, in a panic, across the board lowered limits only to then a month later send out offers of increases to individuals. Barry Ritholz had story about this happening to him on a business trip. Outcome was a lost customer.
Last year, Citicard decided to stop processing transactions for a licensed gun shop citing they couldn't be sure the transactions were legal. This caused a stir among the gun community and many cancelled cards. To bad for Citicard since hunters and shooters spend a lot of money and gun sales are about the only thing booming right now.
Hopefully, AMEX is using real metrics and not just some execs biased reaction/political opinion for their decision. In the end they must balance their actions with the risk of losing good credit risks over the action.
Chet-- To the extent what you're saying is plausible (which I have issues with), the problem is the employer misusing the datascore, or arguably the credit reporting agency, not AmEx. Asking AmEx to ignore warning signs and keep your credit line the same because a reduction might impact your credit score, which in turn might hurt your employment prospects, is absurd.
This caused a stir among the gun community and many cancelled cards. To bad for Citicard since hunters and shooters spend a lot of money and gun sales are about the only thing booming right now.
We're a touchy bunch with good internet connectivity. And personally, I like to use credit cards for online gun stuff because I do business with a lot of extremely shady operations.
I'm astounded that people believe that credit card companies are responsible for people's credit scores. Why not bash every card for refusing to give you a $50,000 limit? After all, if they did your used:available would be incredibly small! It's outrageous, unfair, and unAmerican that they manipulate your credit score this way!
Re: Given the extensive influence of credit scores on our non-credit lives - employment, utilities, getting an iPhone, getting insurance
As far as I know no employers check employee credit scores on a rotuine basis. Some (but only a minority) do check credit history on new applicants, but even there it's one datapoint of many.
Utilities by the way aren't interested in FICOs, but in the presence or absence of unpaid utility bills on one's record. Ditto landlords, who mainly care if you have judgements against you by past landlords.
I have actually worked in the industry for a long time (although not for AMEX) and created many credit scoring models. I think what Amex probably found was that individuals who rarely shopped at discount stores like Wal-Mart and then started spending at discount stores were often on their way to bankruptcy perhaps without even going delinquent (called a surprise bankruptcy which is very expensive for banks). Yes it might only be in 1 in 5 people who end up going Bankrupt who act this way but that is still very dangerous for the bank and they need to act prudently. If you really are not in trouble then getting your credit line cut won't hurt you that much (there are alternatives). If the cut causes you to be in trouble then you are actually risky meaning the bank probably did the right thing. As to whether the bank should be able to mine your data, it is the bank's data too and they may not have a right to sell it but they do have a right to use it to prudently manage their risks. We have had too much imprudent behavior by banks in the past few years, haven't we?
This is a funny paragraph, because the first '(' serves as a visual stop:
"I think there's some misunderstanding about what the card companies are trying to do when they do this kind of data-mining: why they trim your credit card limits when your shopping patterns change, or raise your rates when you're late on another card but current on theirs. They do these things because they can (or so the card companies believe) be reliable indicators of someone in financial distress."
I think it's right with the stop. They do these things because they can, and they think that people carrying a balance will take it.
Obviously in a practical sense they are balancing the profit versus the negative customer experience.
Obviously they must think they've identified a "trapped" borrower subgroup, because those of us with no (or easily paid) balances wouldn't take it. We'd pay the card after such an affront and leave.
I think that's what leaves a bad taste about the whole thing, because for it even to work, for it even to contribute to their bottom line, they have to be identifying a vulnerable subgroup.
Larry, OTOH, a sudden cutoff of credit may well instigate a bankruptcy. I've gone through this in 2001-2002 after my startup sank (while I'd spent an inordinate amount of time and money trying to keep it afloat). Without being able to draw on my credit, I am not sure what options I'd have had in weathering that crisis. As it were, I went maybe 70K in debt and then paid it off over next few years -- a much better deal for everyone involved than a bankruptcy, I'm sure. Well, at least for my creditors...
Lance beat me to it. Chet's engaging in paranoid fantasies.
I think that's what leaves a bad taste about the whole thing, because for it even to work, for it even to contribute to their bottom line, they have to be identifying a vulnerable subgroup.
I don't understand how this is supposed to leave a bad taste. If you can't afford to pay your cards, you're a bad risk, and the issuer needs to cut you off before you run up the debt and file. What about this group is "vulnerable" enough that I'm supposed to take pity on them and be angry at the mean old credit card company, demanding that you pay for the things it bought you?
If you can't afford to pay your cards, you're a bad risk
That's not, strictly speaking, true. Most of us can't afford to pay off our mortgage on the spot either. The credit cards effectively have two unrelated functions: an exchange medium (electronic money) and a line of credit. Your statement discounts the second function, which kinda goes opposite to the bank's business model -- aren't they making money off interest payments from consumers? They don't get a cent in interest from the cards that are paid off every month. Thus the true statement is different: if you won't be able to afford paying off your cards in the reasonably near future, you're a bad risk
season mouse:
I'm not sure how you got what you got from my post. Perhaps typed words to not translate well.
What I was trying to say is that by using such an odd metric to lower credit lines, amex risks alienating its customers, many of whom may well be financially stable. If the above scenario happened to me, I would cease doing business with amex. If I was near bankruptcy, perhaps that would be best for both parties, but since I am not, amex would be the clear looser.
Max,
Your statement is more accurate than mine.
But I don't think it affects my underlying point, which is that there is nothing underhanded or predatory about lowering credit limits on people who appear to be bad risks. They aren't "vulnerable" to anything.
To follow up, I only see two rational reasons to carry balance on a credit card: (1) to tide over a tight spot or (2) because it's essentially free money. The second one only kicks in with one of those special offers where bank is, in the end, losing money on the deal. At 10% APR and above, I absolutely do not see how it is beneficial to carry balance from a purchase that you could pay off on the spot.
So basically the banks very well know they are mostly lending to idiots... ouch. Is there a broad index fund that specifically excludes financial stocks? ;-)
Rob, the only underhanded thing I see in all this is that I have to buy the goddamn financial stocks as part of my S&P 500...
There seems to be a strange attitude running through some of these posts that credit is a right.
It's certainly very convenient, but I don't know why that means it should be something people are continually entitled to without change, regardless of alterations in their behavior.
I can understand being upset--and I think it probably makes good business sense for a company like AmEx to offer a customer the opportunity to demonstrate that they are not a higher credit risk than previously thought--particularly given the risk of false positives, but it's hard for me to see that as an obligation.
There seems to be a strange attitude running through some of these posts that credit is a right.
Credit itself may not be a right, but ever try buying anything online, buying an airline ticket, or renting a car without a credit card?
If they want to be the electronic money medium with their fee skimmed off the top, fine, but don't pretend it's all about credit. Even my debit card has VISA on it.
But remember too that - unlike a mortgage* - credit card debt is unsecured debt.
* present-day housing/mortgage woes notwithstanding.
Basically, people are pissed that they can't game the system if they don't know what metrics the card companies are using. They forget about that small print they signed their name on, called a Cardholder Agreement...
"...Bank will inform Cardholder from time to time of the maximum amount of debt ("Credit Limit") that may be outstanding in the Account at any time, and Bank, in its sole discretion may adjust the Credit Limit from time to time..."
And personally, I like to use credit cards for online gun stuff because I do business with a lot of extremely shady operations.
Hey Rob, what's the core charge on a reman MG42? ;)
So AMEX cuts your limit because you shop at Wal-mart, all your other credit cards jack your rate because your credit score just dropped, and boom, you just got pushed from teetering on the edge into the abyss.
If having your credit card limits slashed and/or rates increased pushes you into the abyss, you were already in the abyss to begin with.
@TakeFlight:
"Basically, people are pissed that they can't game the system if they don't know what metrics the card companies are using."
Well, that's one way of putting it, I suppose.
I don't think people are pissed because the banks have an open-ended agreement to do whatever they want at any time for any reason. It's not like you can find any credit without policies like that.
People are pissed because of the way credit scores work and how ubiquitous they are, actions AmEx can take without any justification can potentially have consequences outside your relationship with AmEx. Yes, you can be denied credit elsewhere or have other lines lowered if you suddenly have a balance close to your max because of something like this, and yes, employers do check credit scores.
While AmEx has the right to do this, it's a pretty damn shady thing to do, especially if they're not telling you how they make those decisions or why yours was made specifically. People who will game the system based on stuff like that aren't going bankrupt, because they're smart. And it's made worse by the fact they're trying very hard to cover up the story so more people don't cancel their accounts than already have.
But again, free market blah blah. The anger is a "this is why you shouldn't do business with AmEx or other companies that do this" anger.
"If having your credit card limits slashed and/or rates increased pushes you into the abyss, you were already in the abyss to begin with."
No, it means you were barely holding on, and have been pushed into the abyss. Lots of people have gotten into credit card trouble due to making bad decisions and have since slowly dug themselves out. I'm one of them. There are a lot of steps in between never carrying a balance and bankruptcy, so don't pretend like giant rate increases and slashed balances don't make it harder for people to clear their debt. Especially if you've lost your job, something like that may well push you over the edge to simply being unable to keep up with interest and defaulting when you otherwise would have been able to.
I think what Amex probably found was that individuals who rarely shopped at discount stores like Wal-Mart and then started spending at discount stores were often on their way to bankruptcy perhaps without even going delinquent (called a surprise bankruptcy which is very expensive for banks)...
This sounds very plausible. A savvy debtor on the way to Chapter 7 will use some of his dwindling, remaining credit capacity to stock up on essentials. No better place for that than Wal-Mart.
I just got bitten by this when I woke up this morning and found an email from AmEx letting me know they cut my limit. I'm a recent graduate, up to my eyeballs in student loans, and I spent most of my last two semesters living off credit cards with the plan of paying them off after graduation. I'm not worried about my long-term earnings potential, but this credit limit cut has put my current finances in a really bad spot. I'm going to close the account after I pay down the remainder of my balance. Sorry, American Express, you just lost a previously happy customer.
If you don't want someone to assess your creditworthiness, don't ask anyone to lend you money. If you carry a balance on a credit card and you're not in a position to pay it off, you're in a weak position. If you don't want to borrow money from AmEx, by all means don't. That's good advice anytime.
If having your credit card limits slashed and/or rates increased pushes you into the abyss, you were already in the abyss to begin with
If the person in question is an idiot (i.e. was using the revolving credit to temporarily boost consumption, consequences be damned) then you're right. Otherwise, an unexpected cutoff of the credit is the same thing as an unexpected margin call. I doubt that the security trading as we know it now would be in place if margin calls were random. Equally, unexpected cutoffs and slashbacks on consumer credit effectively make it useless as credit
And still, I'll be among the last people to say that AmEx has no right to do this...
If you carry a balance on a credit card and you're not in a position to pay it off, you're in a weak position.
True. Yet, without ubiquitous consumer credit, you wouldn't see nearly the level of entrepreneurial activity our economy enjoyed for the last what, 20 years? Are you saying every startup should be asset-backed? No Internet for you, then -- enjoy your pizza delivery and dry cleaning service instead.
Basically, people are pissed that they can't game the system if they don't know what metrics the card companies are using.
That really isn't it at all. There is a reasonable expectation that credit decisions be based upon some sort of logical reasoning, rather than whim or the financial misfortunes of American Express. Since a reduction in credit limit lowers ones FICO, AmEx's choices are not made in a vacuum. Since other creditors rely upon that information, their decisions can create a domino effect with one's creditor relationships and should be made accordingly.
Again, there is a fundamental misunderstanding among the right wingers here as to what credit scoring is all about. As is the case with a school or university grading system, the score is designed in part to encourage borrowers to behave in ways that creditors like.
You may describe that inaccurately as "gaming the system", if you wish to perpetuate your inaccuracies. But Fair Isaac itself refers to this in their promotional literature as "communication with consumers so they can improve their credit standing over time."
You need to understand that creditors want you to achieve better credit. The creditors also benefit when borrowers behave in ways that generate higher FICO scores. A FICO score improves when credit behaviors that serve creditors are increased and improved. Knowing the rules and following them produces better results for creditors, not worse ones.
AmEx has its own issues at the moment, and what you're seeing now is drama related to its own wagon circling. There is no reason for the average citizen to have his own credit score compromised because of the poor investment choices made by his creditors.
Max, we're talking about consumer credit here. People pay for consumer stuff with borrowed money that they can't pay off every month. They eventually carry huge balances that arise from long ago eaten pizzas and long ago burned gasoline. I do understand that it is hard for many to sustain themselves without resort to this kind of use of credit. However, it is not good for the individual debtor, and it is not good for the world economy that so many of us live this way. Our credit card borrowing cannot fuel the world economy in the long run.
There is certainly a distinction between denying/limiting credit amounts and modifying credit interest terms. I have no problem with a lender acting to limit further exposure, I have big problems with lenders looking for excuses to increase income on existing exposure. Is there incentive to jack up the balance with excess interest and penalties before default? The people who continue paying at usurious rates is one reason to do it, does the lender get to right off as a tax deductable expense all the interest and penalties they generate, even if there was no expectation of repayment?
As far as I know no employers check employee credit scores on a rotuine basis.
I worked in a business that did routine credit checks. They were paranoid, for sure, but they told everyone up front. I'm not aware of anybody who actually lost his job, but in theory that was a possibility.
As is the case with a school or university grading system, the score is designed in part to encourage borrowers to behave in ways that creditors like.[...]You may describe that inaccurately as "gaming the system", if you wish to perpetuate your inaccuracies.
Absolutely my goal here is to to perpetuate my right-wing inaccuracies.
Let's take your comparison with a school's grading system...
If I have a copy of the test ahead of time, then when I take the test it isn't measuring my real subject matter knowledge; it's measuring my ability to give correct answers to known questions - to game the system. That's why teachers don't typically give out the questions & answers to the final exam, no?
Similarly, if people know exactly how creditworthiness is measured (on the micro level) then they can do specific things that increase their "score" without really becoming more creditworthy and the whole thing becomes meaningless.
People "game" college exams, the SAT, FAA written exams, IT certifications, job interviews, all kinds of things. It's a constant battle between coming up with meaningful metrics and the metrics becoming meaningless once they are known.
Having an amex card, or a given credit limit is not a right, it is a privilege. As long as amex doesn't break any privacy laws, or violate any contractual agreements, they should be free to use whatever information they see fit to determine credit limits.
You need to understand that creditors want you to achieve better credit. The creditors also benefit when borrowers behave in ways that generate higher FICO scores.
Yes. But if you're about to do something that would trash your credit score--they want to know that beforehand. Particularly if you're going to use their money to do it.
This is a bit closer to fraud monitoring than it is to typical credit scoring. AmEx is looking for signs that someone is going to drastically alter their behavior, and doing what they can to make sure that they keep their money out of it.
A FICO score improves when credit behaviors that serve creditors are increased and improved. Knowing the rules and following them produces better results for creditors, not worse ones.
There is no reason for the average citizen to have his own credit score compromised because of the poor investment choices made by his creditors.
The idea is that this isn't done to average citizens, but people who AmEx has some indication that will be coming up on a foreclosure/bankruptcy/default.
Their models may be bad--but the idea is sound. I think it's probably a bad idea businesswise, and that AmEx will be punished for it, but I still don't see how it's not their right to do it. It's not the responsibility of the AmEx to maintain a credit line for the benefit of their customers if they don't--for whatever legal reason--think it's a good idea.
Re: I worked in a business that did routine credit checks.
What was their basis for doing this? I could see maybe the CIA or some other super-duper secret government project doing it. But I can't imagine any private business would need that level of intrusiveness into its employees' personal lives. Sounds to me like the business owner could have benefited from a course of anti-psychotics.
How do you on the "pro" side feel about the non-symmetrical information, in practice?
The only way we heard about these on-the fly interest rate adjustments is because they started happening. No one found the real meaning of the fine print before the fact. If I understand correctly, the CC companies just said "or other causes" and their customers, and the press, took those other causes to be reasonable.
Suddenly now the pro side seems to be staking out "anything goes" as a reasonable"other cause" for rate change.
I don't suppose you have any before-the-fact statements in your blogs that credit card companies should be able to change the interest rate on outstanding balances at will?
Honestly, how many of you compared rates on your CCs thinking that you were comparing something meaningful?
Similarly, if people know exactly how creditworthiness is measured (on the micro level) then they can do specific things that increase their "score" without really becoming more creditworthy and the whole thing becomes meaningless.
A FICO score is based upon proactive behavior that creditors like to see that are tough to fake, such as making payments on time and otherwise complying with repayment terms.
As seems to be routine on this blog, the hysterical right-wing hypotheticals used as foundations for arguments are based upon factors that don't exist.
In large part, FICO scores go up when borrowers do things that benefit lenders. If you look at the components of what make up a FICO score, this is easy enough to see. There are some things that borrowers can do that are "better" than others in the world of FICO that may otherwise be of questionable value out here in the real world, such as splitting a given balance across a few cards instead of carrying it on just one. But overall, there is only so much treachery that one can use to game the system, and anyone whose political ideology doesn't blind them from using Google should be easily able to figure this out.
The one area that would boost one's standing without merit is obvious -- lie about income. But you didn't need this website or a in depth analysis of credit scoring to know that.
So we're back to defending the indefensible, based upon the presumption that corporations good, little guy bad. I guess that it didn't occur to most of you that AmEx has not itself exactly been a model financial services company as of late, and that it could be the blowback from its own financial mismanagement that is motivating some of its more recent practices. There's risk management, and then there's ridiculousness, and we seem to be moving quickly toward the latter.
FWIW, I've never purposefully carried a CC balance. In the old days you could go on vacation and miss a payment by a week, and just call the company and say "I was on vacation."
No more. The weird thing thing is that the changing rates and perhaps more importantly the new charges and penalties, are just reinforcing for us zero-balance people to stay zero balance, and to go online and make a payment while on vacation if we have to.
I think this is going to catch up with them, in terms of new users of their credit ... though perhaps they think they have enough captives that it does not matter.
RW,
I meant to follow up on this before - under your model, AmEx could never lower your credit limit due to their own financial situation. That would negatively affect you due to their problems.
That is a ludicrous position - there's no way that's a workable system. If AmEx's operating capital is shrinks due to mismanagement, in order to be fiscally responsible they need to reduce their credit exposure. That will negatively affect people's FICO due to the reduced debt/avail ratio, but it simply has to happen.
The weird thing thing is that the changing rates and perhaps more importantly the new charges and penalties, are just reinforcing for us zero-balance people to stay zero balance
The funny thing is that the 30% of us who fall into this no-balance category were previously denounced by the credit card industry for being "deadbeats" because we avoided the obligation to pay them lucrative interest payments, while taking them for their rewards points and the float.
If the latest and greatest business model is to extend credit in the hopes of downgrading the borrower's status mid-stream in order to justify new surcharges and penalties, then that sounds more like bait-and-switch than it does good faith lending. But if a large corporation is doing it, then it must be OK, right?
I don't suppose you have any before-the-fact statements in your blogs that credit card companies should be able to change the interest rate on outstanding balances at will?
Well, no. But we were originally discussing a change in credit limit, not rates, and--take note RW--not FICO scores, at least not directly.
the hysterical right-wing hypotheticals used as foundations for arguments are based upon factors that don't exist.
This would be in contrast to the thoroughly reasonable left-wing hypotheticals where somebody who is perfectly able to service their debt and not in any way a credit risk is forced into unemployment and thereafter bankruptcy because Amex lowers their limit one card.
Out of curiosity, do you write copy for freecreditreport.com commercials?
I meant to follow up on this before - under your model, AmEx could never lower your credit limit due to their own financial situation
Great, so now you've resorted to more strawmaning, trying to claim that I've made points that I've never made.
Nobody argued that AmEx shouldn't be able to cut a credit rating for inappropriate or negative conduct, such as missing payments or losing income. But cutting a limit based simply upon the merchants one chooses goes beyond a slippery slope.
You've created circumstances in which arbitrary opaque corporate behavior is permitted and encouraged, at the expense of the consumer. Between myself and AmEx, one of us received TARP money and the other did not, so who exactly is the irresponsible party here?
Here's a wacky thought -- if AmEx suspects that a borrower's fortunes have slid, then it should request a verification of income. In other words, base decisions on facts, instead of wild speculation based upon the fact that somebody chose the discount store as a place to buy a tube of toothpaste.
But we were originally discussing a change in credit limit, not rates, and--take note RW--not FICO scores, at least not directly.
Since reductions in credit limits lead to reductions in credit scores, the two issues are directly related. It's disingenuous to separate them when the linkage is clear.
Since reductions in credit limits lead to reductions in credit scores, the two issues are directly related.
Sometimes they do, other times, not. And the ding in FICO might lead to other consequences, or it might not. What you're saying is that Amex can't take sound business action which--after two or three layers of "maybe," all of which are under the more or less direct control of the card holder--leads to something bad happening to a customer. It's rather disingenuous to conflate A with B if the causal chain is that weak.
(I'm assuming that Amex's action is sound, of course, but if it isn't, they'll suffer for it more than any of us).
Psittakos: consumer credit is exactly what funded [at least] the last two booms in hi-tech startups. I mean before the more successful of the crop got their A-series from venture capital. That's not the only financially sound way of using consumer credit though: if you were moving across the country to take a job with better prospects, you might easily be facing a shortfall in personal cash flow that credit card helps close -- at an acceptable cost.
The image of a runaway spender appears to have overshadowed everything that has to do with consumer credit in many eyes...
What you're saying is that Amex can't take sound business action
I'm all in favor of sound action. I'm not in favor of arbitrary, opaque practices that blindside performing accounts.
You apparently believe that AmEx can do no wrong. By your reasoning, everything it does is "sound" and its practices are beyond reproach. I guess that I have no problem in criticizing bad policy when I see it. The argument is for good policy, not for the laissez faire that you prefer or the absolute financial anarchy desired by the hypothetical strawmen who haven't posted here at all.
You apparently believe that AmEx can do no wrong.
I have never said anything of the kind. There are two questions here: 1) Is Amex's decsion-making process good at identifying probable defaulters? and 2) Is the process just and fair?
I take no position on 1) because I have no way of knowing if it is or not (and I rather suspect you don't either. Indeed, I rather suspect you don't really know what their process actually is, other than vague allegations from journalists). But clearly, if the answer to 1) is "no," the answer to 2) is much more likely to be "no."
My position, for two days now, is that if the answer to 1) is "yes" then I see no reason why the answer to 2) shouldn't be "yes," as well.
As seems to be routine on this blog, the hysterical right-wing hypotheticals used as foundations for arguments are based upon factors that don't exist.
It's a bit odd to think that the position that AmEx can decide how much money they're willing to lend you is a hysterical right-wing position.
RW,
I may have interpretted this wrong, so please explain it to me:
Since they need to limit risk, they isolate those clients whom their data suggests are changing their risk profiles higher and limit their exposure via credit limit reductions. Yes this trickles into your FICO - just as if they took a 10% reduction in all Non-Centurion credit limits would. They chose a more isolated, nuanced approach (remember the Wal-Mart part of this is less than speculation, it has no positive proof and some negative) to limit those more risky borrowers.
Income? Why not bank records? tax returns? medical records? insurance numbers? loan sharks? bookies? drug dealers? That would never be an acceptable practice to require you to at a moments notice provide a complete financial prospectus, even your 'questionable' behaviours. No one would ever divulge that info, so AmEx and all creditors have to use a proxy. You've decided to share your spending habits with AmEx - so they are entitled to use that when judging your risk.
You don't like living by the whims of a corporation, then don't. Cancel your credit cards and live on cash, checks and debit cards.
Here's a wacky thought -- if AmEx suspects that a borrower's fortunes have slid, then it should request a verification of income.
They should do this anyway, just owing to the issue of false positives.
But just because they ought to do the smart thing, doesn't mean it's not within their right to do something that I think is dumb.
There are two questions here: 1) Is Amex's decsion-making process good at identifying probable defaulters? and 2) Is the process just and fair?
It sounds like there's another issue at stake as well: Whether or not AmEx has the right to do this regardless of the answers to questions 1 and 2. It's hard to see how the answer is anything but yes.
I'm skeptical of the accuracy of the data mining process--this is pretty hard to do well, particularly when looking for a few instances of a specific behavior. For instance, fraud detection models are very well developed, but anything flagged as likely fraud is much more likely to be irregular usage by the actual cardholder than real fraud. That's why the card issuer calls the merchant rather than just shutting off the card.
But I guess that I just don't see the basis for forcing a CC company to maintain a line of credit to a customer that is larger than they believe to be appropriate, whether or not their basis for that belief is, in my opinion, well grounded. They believe it's well grounded, and it's their money. Seems pretty simple.
if AmEx suspects that a borrower's fortunes have slid, then it should request a verification of income.
That would annoy the hell out of their entire customer base, especially since they'd have to do it regularly -- every three months at a *minimum*, and preferably every paycheck. They can't just do it once, especially when we're in the middle of rising unemployment. The manager with an income of $250,000 today could have an income of $0 starting tomorrow and continuing for a year or two afterwards. Lots of good it does you to verify that income only to have him max out every card he's got three months later.
Purchases and cash advances are the only information the card companies have that constantly kept up-to-date. It also has the advantage of being information they don't have to ask their customer for. That's why they're relying on it. The customer impact is minimal and the latency of the data is extremely low.
The problem is by owing too much money ---they don't just cut your limit--they jack up your rates on the theory that you're a higher risk of default which always struck me as self-defeating since the higher rates themselves would seem to make default more likely. In my mind, there ought to be definite criteria which limits their ability to raise rates, not a blank check.
Chet-- To the extent what you're saying is plausible (which I have issues with), the problem is the employer misusing the datascore, or arguably the credit reporting agency, not AmEx.
What misuse? Under Federal law, employers can access your credit score, and assessing when employees in sensitive positions are likely to have their professional ethics compromised by a sudden need for cash strikes me as good business sense. As sensical, anyway, as AMEX trying to lower its default rate by cutting off people who shop at WalMart. I don't see how one is prudence and the other is "misuse."
That would annoy the hell out of their entire customer base...
Cutting a credit limit suddenly with little warning, despite an account being paid as agreed, is probably a wee bit more annoying that that. Still, I'm touched by your sudden sympathy for the burden imposed upon the consumer.
And you may note that I mentioned using this selectively, not en masse. A bit like those algorithms that are so strongly supported by some posters on this thread.
especially since they'd have to do it regularly -- every three months at a *minimum*
With that comment, you've gone out past left field, beyond the stadium parking lot and into the next county. Even the most paranoid of creditors would find that sort of frequent review to be cumbersome and unnecessary. Nobody does this sort of thing in the real world. Leave the strawmen on the farm, please.
No one would ever divulge that info, so AmEx and all creditors have to use a proxy.
Income verification is not an unusual practice in the world of credit. And again, we're talking about selective usage targeting those folks whose downmarket shopping habits have raised your ire, not everyone.
It's a bit odd to think that the position that AmEx can decide how much money they're willing to lend you is a hysterical right-wing position.
That's about the only mentality that could possibly defend drastic reductions of credit terms on accounts that are being paid as agreed in compliance with cardholder agreements, while keeping a straight face. Most people have enough of a sense of fair play to see the problem here. It takes a special kind of mindset to believe otherwise.
If you don't want someone to assess your creditworthiness, don't ask anyone to lend you money.
Or for a job, or to let you buy an iPhone, or buy car insurance, or let you rent an apartment, or...
Who on Earth, in 2009, could be so stupid or ignorant as to think that the only thing your credit score does is give you access to credit?
You're mistakenly treating this situation as though it were Amex making a decision to lower someone's credit score. While Amex's decision may have that effect, that's not what Amex is doing. Amex is making a decision to cut off a higher-risk customer. There is absolutely nothing wrong with that. Nobody has a right to get credit from Amex.
Most people have enough of a sense of fair play to see the problem here. It takes a special kind of mindset to believe otherwise.
It's not particularly fair, but neither is life. It's not fair when a company lays off employees either, but most employment is at will in the same way that AmEx offering you credit is. They're not obligated to maintain your credit line and you're not obligated to draw on it.
It's pretty hard to for me to understand how someone can think that it would make sense to force a CC company to not manage their exposure to people they think are becoming poor credit risks. I'm not even sure why this would be a left/right issue.
Cutting a credit limit suddenly with little warning, despite an account being paid as agreed, is probably a wee bit more annoying that that.
It would be annoying to people who rely on maintaining a large balance on their credit cards on a constant basis. There are two groups of people in this category: the financially unsound and the deeply stupid. I am a member of neither group. To those of us who do not maintain such balances, having our limits reduced would be a minor irritation compared to having to provide proof of income or lose the card.
Still, I'm touched by your sudden sympathy for the burden imposed upon the consumer.
You must have misread me. I have no sympathy for consumers who feel "burdened" by the products they consume. Stop consuming them or quit whining. The only thing you need an unsecured credit card for is borrowing money with no questions asked -- everything else you "need" a credit card for, you can use a debit card or secured credit card for instead.
And you may note that I mentioned using this selectively, not en masse. A bit like those algorithms that are so strongly supported by some posters on this thread.
You're suggesting using the algorithm to identify potential problems, then forcing those people to provide proof of income. This manages to be the worst of both worlds, since it still annoys the hell out of the false positives but lets the correctly-identified credit risks off the hook if their problems aren't due to a lack of income.
Even the most paranoid of creditors would find that sort of frequent review to be cumbersome and unnecessary. Nobody does this sort of thing in the real world. Leave the strawmen on the farm, please.
It would help if you knew something about the credit card industry. They review creditworthiness continuously. Not every three months -- continuously. The only delay is the time it takes a piece of information to filter through the system. The algorithms you so deride operate continuously. If a person pops up as "high risk" and you demand an income statement, then he pops up as "high risk" again two weeks later? You'll ask for that income statement again.
That's about the only mentality that could possibly defend drastic reductions of credit terms on accounts that are being paid as agreed in compliance with cardholder agreements, while keeping a straight face.
You mean the cardholder agreement that flatly states their right to lower your available credit anytime they feel like it? That cardholder agreement? Yeah, only a crazy right-winger would think an agreement giving them the right to lower your credit limit whenever they want would give them the right to lower your credit limit whenever they want.
Amex's job is to manage its own risk, not to try to maximize the score some third party gives to you.
Hint: there is nothing in your agreement with Amex that says, "As long as you pay your Amex bill, we will never change the terms on which we offer credit to you in ways you don't like." If you want to start a card company that offers such a contractual provision, go ahead. You'll be bankrupt in three months (and thus probably still whining that the world isn't fair), but, hey, that's your right.
Amex is not responsible for what the Fair Isaac Corporation does.
AmEx certainly knows what Fair Isaac and its other customers do with the information.
You want to fault the bus driver for the guy who threw someone underneath the bus. Blaming the victim is another conservative trait, so I can at least respect your consistency.
It would help if you knew something about the credit card industry. They review creditworthiness continuously.
You need to pick a story and stick with it. One minute, you're acting as if the poor piteous creditors arw flying blind, the hapless dupes of scheming cardholding ne'er-do-wells; the next, you're convinced that they run a fine toothed comb through everyone's life history every few minutes.
The truth lies somewhere in between. They already do have a fair bit of info to work with. Nobody here seems to particularly mind that, including myself.
What those of us with saner minds do dislike is the notion of borrowers with performing accounts suddenly being lobbed into a negative category, despite their compliance with the cardholder agreement. People who keep their commitments deserve better treatment than those who don't.
Your problem is that you lump bad borrowers and good ones into the same category. You seem to have a rabid hatred of borrowers, even though these are the very same customers that make successful credit card operations profitable. Yours is an intellectually bankrupt position to adopt, an ironic outcome in light of the topic.
It's not particularly fair, but neither is life.
That's a rather facile response, one that that you could use to glibly defend any injustice. Instead of "why worry?" shrug of the shoulders, I'd prefer to have fair disclosure and transparency rules in the consumer credit industry, so that consumers get to play on a level playing field and aren't subject to arbitrary rule changes just because somebody feels like making them.
Chet,
The point, obviously, is that if you're worried about the credit limit AmEx will set for you, don't borrow money from them. If you feel you need to have a revolving credit account, pay the balance every month and you won't need to worry about what the credit limit is. Your credit scores will be just fine. You have nothing to fear from AmEx unless you're up to your ass in debt to them or some other unsecured consumer credit lender.
You need to pick a story and stick with it. One minute, you're acting as if the poor piteous creditors arw flying blind, the hapless dupes of scheming cardholding ne'er-do-wells; the next, you're convinced that they run a fine toothed comb through everyone's life history every few minutes.
I am not responsible for your hallucinations and didn't actually offer up either of those "stories". So if you're confused, it is not my doing.
The explanation I and others have patiently laid out for you over and over again is that neither Amex nor anyone else in the world is able to perfectly predict anything. What Amex does, is make the best estimations it can based on the information it has available. It does this, as I said, continuously -- the greater the delay in acting on a piece of bad news, the more money they lose to deadbeats. So they are neither "flying blind" nor aware of every detail of your financial status. The truth lies in a sane middle ground that you're incapable of comprehending: they have a fair idea of your status, but must constant update that appraisal in order to minimize the risk of exposing themselves to bad loans.
What those of us with saner minds do dislike is the notion of borrowers with performing accounts suddenly being lobbed into a negative category, despite their compliance with the cardholder agreement.
Nobody's questioning your sanity. It is entirely sane for you to want Amex to take all the risks while you receive all the rewards. It just isn't sane to expect Amex (or anyone other than you) to share your priorities. They're a business, not a charity for people who like to run up their credit card balances.
People who keep their commitments deserve better treatment than those who do.
People who fail to pay their bills suffer all the same consequences as people who are identified as credit risks, but in addition have to pay fines and late fees. So you're getting the treatment you "deserve". You're treated better than a defaulter is.
The explanation I and others have patiently laid out for you over and over again is that neither Amex nor anyone else in the world is able to perfectly predict anything.
Funny, but when I point out that the geniuses at the helm are flawed, you attempt to disprove that point by arguing that the geniuses at the helm are flawed. Thanks for clarifying that.
On the previous thread, you stated that "(r)ecent events have shown us plenty of examples of bankers wrongly deciding that someone WAS credit-worthy." Perhaps I misunderstood you. I had thought that you were arguing that they were information deprived, when you are really arguing that they aren't that competent.
If that's the case, then I guess that I should thank you, because my argument is similar. They aren't all that skilled in their use of arbitrary algorithms, after all. I guess you think that they've sobered up lately, but I don't concur with a theory built on epiphany.
Assuming that it has been doing what has been described, it makes no sense for AmEx to use bogus criteria to make decisions that taint its customers' relationships with their other creditors. It would be more than a cheap shot to compromise the position of a customer who thought that he was playing by the rules, who might have sought to do business elsewhere had he known that he was being set up. Obviously, AmEx has done a poor job of it before, so my expectations for improved future performance are low.
In other words, AmEx is worthy of a low business FICO score. AmEx's own status has declined as much, if not more, than that of most of its customers. In some respects, the company isn't that good at what it does, so I have little faith in the accuracy of its current wave of new-and-improved algorithms when the previous ones weren't exactly terrific. It's that sort of cleverness that got them into trouble in the first place.
I don't want my TARP money financing their misguided criteria, even if those are part of some sort of libertarian wet dream to stick it to the non-Man. The company hasn't earned the respect, and given its parole status with the American taxpayer, the burden of proof is on the firm to support its actions. It isn't the CIA, either. I'd leave the cloak and dagger gamesmanship to the CIA.
Funny, but when I point out that the geniuses at the helm are flawed, you attempt to disprove that point by arguing that the geniuses at the helm are flawed. Thanks for clarifying that.
I'm aware that you've been railing endlessly against the straw man of "Amex perfection", but nobody's ever said they were -- not in this thread or any other. You just aren't bright enough to see the value in imperfect estimates of credit risk, so you keep ranting that if Amex can't do it perfectly it shouldn't do it at all.
Perhaps I misunderstood you. I had thought that you were arguing that they were information deprived, when you are really arguing that they aren't that competent.
If you consider everyone who isn't perfect to be "not that competent" then I suppose you could say that. A more intelligent person would say that overestimated the crediworthiness of marginal borrowers.
They aren't all that skilled in their use of arbitrary algorithms, after all.
I suppose you could say the way banks underestimated mortgage risk until a year or two ago proves that American Express is incapable of identifying bad credit card risks today. You'd just have to do a lot of heavy drugs first so the argument would make sense to you.
In other words, AmEx is worthy of a low business FICO score. AmEx's own status has declined as much, if not more, than that of most of its customers.
Amex is doing badly because defaults are on sharply on the rise. All credit card companies will be seeing revenue drop sharply in the coming years, because a lot of the nitwits they rely on for revenue -- the ones who keep large balances on their cards all the time -- are going to start going bankrupt instead of just wallowing endlessly in debt. That's why Amex (and all the other cards, too, even if they haven't gotten NYT stories yet) are tightening up their policing of potential deadbeats.
I don't want my TARP money financing their misguided criteria
Yeah, well I don't want my money going to fund an $800 billion pork package of a fat bailout for lazy-assed Detroit autoworkers. Life's tough all over.
you keep ranting that if Amex can't do it perfectly it shouldn't do it at all.
Again, you're tilting at windmills, creating strawmen for you to debate because your arguments fall flat against what is actually being said.
No one argued that AmEx can't use reasonable standards. No one. I realize that your position may appear to be (slightly) logical if its counterargument is as extreme as is yours, but since nobody made such claims, you should stop pretending that they did.
The issue here is not of having no standards, but one of having reasonable standards, along with the transparency needed to evaluate them.
As it turns out, these particular extreme standards of yours would be unreasonable, and we can't trust AmEx or any financial institution enough to entrust with creating such standards without the transparency.
You're so hung up in attacking borrowers that you appear to see AmEx as a soldier in a war against bad credit. What you fail to comprehend that it is not fighting bad credit, it is spawning it. Going from one questionable practice to another is not exactly going to generate comfort among those of us who comprehend that they are part of the problem, not hapless victims who were blindsided by ruthless con artists.
I suppose you could say the way banks underestimated mortgage risk until a year or two ago proves that American Express is incapable of identifying bad credit card risks today.
If we are living in a results-oriented society, then yes, we should judge the results. Since those weren't very good, we should ask ourselves who participated in creating the bad results.
Conservatives talk a lot about accountability. Sadly, accountability is always something seen as a requirement for other people, and never for themselves. God forbid that we actually look at what happened and respond accordingly...
Instead of "why worry?" shrug of the shoulders, I'd prefer to have fair disclosure and transparency rules in the consumer credit industry, so that consumers get to play on a level playing field and aren't subject to arbitrary rule changes just because somebody feels like making them
Meh. Not every problem is best solved by rules and legislation. To the extent that AmEx is correctly identifying people who are going to default, they're doing something good. To the extent that they don't, they're going to lose customers. Seems ok to me. If you don't like that policy, get another credit card--AmEx is a shitty CC company anyway.
If you don't like that policy, get another credit card--AmEx is a shitty CC company anyway.
I'm not personally having any problems with AmEx, or for that matter, with any other credit card company. (You see, I am one of those morally superior people who never carries a balance, the ones that credit card issuers refer to as "deadbeats." The zero percent interest rate and award points help me to endure the namecalling.)
I would hope that we're not all so self-centered that we lack empathy for problems that we aren't enduring ourselves. Then again, I could see how my hopes might be a bit misplaced....
The issue here is not of having no standards, but one of having reasonable standards, along with the transparency needed to evaluate them.
RW, politics aside, I guess my point boils down to the opinion that they do not have to have reasonable standards, just legal ones. If they are unreasonable, then Amex will lose market share...the market will "punish" them by going elsewhere. If they're still okay with that, then it's their call as to what their business policies will be. Moral outrage over this just seems misplaced.
The other problem is that the call for "transparency" makes no sense. Amex states, as do all issuers, that they may lower your credit limit. There's no surprise there. Any intelligent person understands that Amex is going to lower credit limits for those who are higher risk, not for those who are lower risk. So there's no issue of transparency there, either. The individual consumer here was not surprised with an unannounced over-the-limit fee; he was told his credit limit was being reduced. Again, no issue of transparency there.
The only thing that Amex doesn't disclose is precisely what evidence leads it to conclude that someone is too high of a risk, and it can't do that, because (a) the answer changes dynamically, and (b) as people in the other thread tried patiently to explain to the not-very-bright RW, telling people would defeat the entire purpose.
Amex states, as do all issuers, that they may lower your credit limit. There's no surprise there.
The unwelcome surprise is that they could lower it dramatically for an account holder whose account is performing. Those borrowers who pay as agreed should have a reasonable expectation that their deal terms won't be rewritten just for the hell of it.
The only thing that Amex doesn't disclose is precisely what evidence leads it to conclude that someone is too high of a risk, and it can't do that
Of course it can do that. You obviously believe that credit is some sort of cat-and-mouse game, in which borrowers are all part of a criminal class. In fact, borrowers are customers who are renting money from businesses who would fail without those customers. As is the case in every business, the customer is supposed to be served.
The system works better when all of the participants understand what is expected of them. Your attitudes are a reflection of your dysfunctional views about the credit system and the political realm in general, not the reality of the planet in which we live. It's supposed to be a business model, not combat.
The point, obviously, is that if you're worried about the credit limit AmEx will set for you, don't borrow money from them. If you feel you need to have a revolving credit account, pay the balance every month and you won't need to worry about what the credit limit is.
It's worth pointing out here that its only the very expensive AMEX cards that let you carry a balance; the regular consumer-grade cards, up through Platinum, require you to pay your balance off every month. It's not really possible to "borrow money" from AMEX except in the very short term. What you're usually paying for, with an AMEX card, is the better-than-average terms of their cardholder agreement.
Again, the criticism here isn't about suddenly losing the ability to borrow a ton of money; it's about a sudden loss of mathematical on-paper credit (you weren't probably going to use anyway) that domino-effects itself right into the potential loss of your job, the inability to rent an apartment or buy insurance, or even a dramatic rise in interest rates on all your other debt, leading to default.
It's a realistic scenario, given how much of our lives are influenced by, or even determined by, our credit scores.
Chet,
American Express offers credit cards (Blue for example) that let you carry a balance up to a credit limit. Everyone here seems to be talking about credit limits (including you in your second paragraph). If you don't owe them money, they're not going to destroy your credit and your life. To be even safer, don't apply for a card.
Everyone here seems to be talking about credit limits (including you in your second paragraph).
Even the non-balance cards have a limit.
If you don't owe them money, they're not going to destroy your credit and your life.
You really have no idea what we're talking about, do you?
The limit you are talking about is what AmEx calls a spending limit. A credit limit is, of course, a limit on a line of credit.
I know exactly what you think you're talking about, and I am beginning to grasp more fully how hopelessly lost this country is.
I've had an Amex since 92 and it never occurred to me it was a credit card. Always very clear it was a payment card.
Since you MUST pay it off every month they have to monitor your use (I recall reading that Ed Mcmahon owed them ~ $200 K when he went bankrupt). Amex generally makes money from merchants, not so much though, they don't typically get those 19.8% rates, so they cannot afford screw-ups. Too bad if they are arbitrary- it's their money!!
Many people posting here simply want to game the card providers (and LIVE the LIE). I recall credit cards used to offer "payment insurance" i.e., send solicitations to borrowers who thought they just might have trouble paying. For a mere 5% p.a. they would "insure" your ability to pay for a few months - basically this was a ploy to get potential deadbeats to self-identify as much as to make money. Computer programs that monitor behavior are similar. They are arbitrary when wrong, but too bad. Arbitrary is not wrong, per se, or even unfair. Credit used to be very arbitrary and default and bankruptcy was much rarer. If you live and die by your credit limit it is you who has the problem, not the lender.
All participants do understand what is expected of them -- pay their bills. But some participants don't do that, and the system only works if the creditors are allowed to weed out those who it thinks will be in that category.
I've had an Amex since 92 and it never occurred to me it was a credit card.
As noted above, the original AmEx cards were not "credit cards", but the company now also offers credit card products that do allow users to carry balances. The company continues to offer both products alongside each other.
If a cardholder refers to his AmEx limit being reduced, then it is mostly likely one of AmEx's credit card offerings, since the traditional cards have no specific spending limit. As is the case with other credit cards, the AmEx credit cards allow borrowers to carry a balance.
Of course it can't do that, for the reasons I explained to you
Your "explanations" are wrong. You'll have to forgive me for disregarding your errors in judgment. You can keep restating them if you like, but inaccuracies remain inaccurate, even after tireless repetition.
[I]Of course it can do that. You obviously believe that credit is some sort of cat-and-mouse game, in which borrowers are all part of a criminal class. In fact, borrowers are customers who are renting money from businesses who would fail without those customers. As is the case in every business, the customer is supposed to be served. [/I]
It's a little bit of both. AMEX has good and bad customers. They benefit themselves and the good customers by identifying the bad ones, as accurately as possible.
An analagoy attempt:Department stores would fail without their customers, but that doesn't mean they aren't going to try to prevent those customers that are also shoplifters from shoplifting. Nor would it make any sense for them to be transparent in how or where they will look for shoplifters (I hope that doesn't require explanation).
They cannot, because (a) what data correlates with default changes daily, and (b) because telling people what correlated with default would merely allow those people to hide the riskiness of their situation. That you don't understand this in no way makes it "wrong."
The analogy Al used with regard to shoplifters is exactly right. You have a security staff whose job it is to watch out for shoplifters. But there are far too many customers (one hopes!) to scrutinize each of them; therefore, you have to narrow it down by various criteria. But if you tell your customers what criteria you use, then they can just trick you by altering their behavior so they don't fit those criteria, thus enabling them to escape notice.
For instance, (to pick a simplistic example) perhaps your research shows that when two teenage boys and a teenage girl all enter the jewelry department together, they're more likely to be shoplifters. So you tell your guards to watch out for that type of situation. But if you tell customers that, then the would-be shoplifters will come in a group of two or four instead, thus enabling them to escape the guards' scrutiny. That would be foolish and unworkable. And there's no reason on earth why a store would want to do that.
Yes, innocent people will also receive scrutiny. So? Other than a crystal ball, there is no method for picking out thieves and only thieves before the fact. Obviously if the ratio of innocent-to-guilty is too lopsided in favor of the innocent, then it's a bad criterion and should be junked, but that's merely a matter of good decisionmaking, not "fairness."