None of my cards have had reduced limits or cancellation. However, that may have a lot to do with how I use them.
The people who make these decisions at many lenders seem to alternately be doing serious computer modeling, and randomly making wild guesses about who might not pay on time. An example description is at
http://www.statesman.com/business/c...es/personalfinance/11/30/1130creditcards.html. It is consistent with what I know of such "analysis".
"Lenders are now increasingly considering factors beyond late or missed payments. Some are looking at geography and shopping behavior as well. If you live in an area with a high foreclosure rate or shop at stores that risky borrowers frequent, don't be surprised if your line is reduced or your rate goes up.
"Among other factors, we do look at mortgage information and geography where there has been a greater deterioration in home prices. Those are some other factors, but again, we're looking at the entire credit profile," Lisa Gonzales, manager of public affairs for American Express, said of credit line reductions.
"We have taken actions such as lowering credit limits, adjusting rates, tightening credit standards and closing inactive accounts, particularly in certain geographies and where we can use mortgage data to enhance our decision-making capabilities," said Jeanette Volpi, vice president of public affairs for Citi.
Reducing credit lines, in particular, has wreaked havoc on many consumers by affecting their debt utilization ratio, which is the percentage of available credit they are using. A high debt utilization can lower a credit score, which then makes it tougher to get credit or at least get credit under favorable terms. "
The part about shopping at stores "risky buyers frequent" troubles me. This could be part of a very good computer modeling exercise, where number crunchers could potentially come up with something useful. For example, there are certain stores where my personal impression is that only stupid people would buy things, because they are wildly overpriced and available elsewhere for much less. Even then, you have to be cautious. You will likely be reducing their business and/or increasing the effective cost of customers buying from them and carrying balances.
It could also be much much less informed. There is a problem which lurks in lots of analysis of this type. You can very easily find that you have just discovered something which has a tight correlation to redlining or discrimination. What if a ton of people in a depressed area of Cleveland all shop at the same store, which has only one location? Congratulations, you've just redlined a poor or declining neighborhood.
Because men and women often shop at rather different stores, it's really easy to fall into gender discrimination. Not many men shop at Lane Bryant. What if many more women's clothing shops are on the list that indicates problems?
Almost as bad, what if someone leaks that list of stores that trigger higher interest rates or cancellations? This sounds like a complete lawyer festival.
