Your Purchases Can Affect Your Credit Score, Too
July 14, 2008 by Miranda Marquit
Filed under Finance
While the FICO score is still used by many mortgage lenders to determine how “credit worthy” you are, many other companies, banks and creditors are coming up with increasingly complex methods of determining a score (although not *the* score) that indicates your credit worthiness. And often, these scoring methods are proprietary.
One of the most alarming trends in this new era of determining credit worthiness is the habit some companies are making of looking at your purchases and lifestyle choices in addition to such items as repayment history, length of credit history and debt-to-income ratio. Granted, this is just information that certain companies can get on you when you use their products, but what if the company decided to sell the information to others?
That’s right. My visit to the day spa last week could be incorporated into my bank’s analysis of whether or not I’m credit worthy. If the trend catches on, it could even be included in my credit score down the road.
According to a recent Businessweek article (hat tip Miki Saxon at Leadership Turn for bringing it to my attention), CompuCredit is being sued by the FTC for not disclosing the fact credit lines might be cut when users of its Aspire Visa card made certain purchases. Note that the FTC isn’t saying that using purchase information for credit scoring purposes is wrong. The FTC is saying that not disclosing that it will be used in future credit decisions is. CompuCredit is fighting the suit, of course. (Back in 2006, though, the company settled a suit with the State of New York over marketing and billing practices.)
As the world increasingly relies on electronic purchases, your habits and lifestyle choices will become easier to track. It is conceivable that every financial decision you make will be quantified and possibly used to label your level of credit worthiness.
Do you want that discreet visit to the adult video store considered in your overall credit score? What about that trip to the marriage counselor? These are all things that CompuCredit has considered — and that other companies may start considering in the future.
Do you think your purchases should be subject to such scrutiny? If you are paying your bills on time, does it really matter what you are spending the money on?
Just one more reason why I’m thrilled we don’t have or use credit cards. Too much information going to too many people. It’s scary!
Do you use a debit card? What if your bank started factoring your debit purchases in when you went in for a mortgage or a car loan?
Who says they don’t check debit purchases. And checks. So you can use cash, right? Not likely. If the financial institution is monitoring everything else, why wouldn’t it monitor your cash withdrawals? Take out too much and your score goes down. How much is too much? That’s up to THEM.
But what else should you expect in a country that can’t spell privacy and where legislation is practically written by the affected industry and certainly is approved by their lobbyists?
You make a great point, Miki! Privacy is becoming SO passé. Your personal finances are, in fact, far from *personal*
Haha. I remember back in the eighties when people would talk about EVERYTHING including their sex lives, but NEVER their finances.
“Let it all hang out” has taken on a whole new meaning!