How where you shop can impact your credit

October 1, 2009 9:26:00 PM PDT
There are certain things we all know will affect our credit ratings -- paying your bill late, missing a payment or taking out too many cards. All of that will hurt your credit score and lower your limit.

But did you know that changing where you shop can send up red flags to your credit card company too?

Kevin Johnson is an entrepreneur and a candidate for office.

"I'm running for state representative," he said.

And, according to American Express, Johnson is a credit risk. Coming home from his honeymoon last year, he was shocked to find Amex had cut his credit limit from over 10 thousand dollars to just 38 hundred dollars.

"I've done a very good job of being responsible and making sure I pay my bills on time," Johnson said.

Even more surprising was one of the four reasons that Amex gave for the decision.

Other customers who used their card at establishments where he recently shopped had a poor repayment history with American Express.

"I was shocked when I read it because I didn't know that companies could assess your credit worthiness based on others around you," he said.

With more than ten percent of credit card customers defaulting on their debt, card issuers are trying to weed out the risky ones. How? By looking for changes in the way we shop.

"Whether you're shopping from a middle or upper tier retail store and suddenly it shows a purchase at a dollar store. Some form of down shifting, like suddenly shopping at Wal-Mart," Robert Manning, author of Credit Card Nation, said.

Those red flags can lead to a deeper look at your behavior.

"If you suddenly started exhibiting new consumer behavior, and then you've made 3 or 4 purchases in a row at a local bar, that would raise some flags that maybe there's some impending financial crisis," Manning said.

For its part, Amex says:

"We don't look at and never have looked at where someone shops to look at a line reduction. We are looking at correlations based on overall spending patterns over time. Debt level is the biggest things given overall resources."

Banking industry sources say credit scores are still the most important tool in predicting consumer behavior. But those scores don't reflect sudden life changes, like job loss or divorce.

"All they can do is look at the actual volumes and transactions that are coming in and see changes in that pattern," credit expert Jeff Slawsky said.

For Kevin Johnson, the experience has motivated him to get involved and perhaps change the way banks work.

"No one should be penalized for the actions of others," he said.

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