Companies Engage In 'Credit Line Profiling' Credit card companies are watching the economy and making pre-emptive moves to reduce the amount of credit they offer to many customers. And they are looking well beyond payment history when reconsidering credit lines. Some companies are looking at who the customers' mortgage lender is, where they shop and whether they live in a region that's been hard hit by foreclosures. Customers are outraged, but card issuers say they are simply managing risk in tough economic times.
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Companies Engage In 'Credit Line Profiling'

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Companies Engage In 'Credit Line Profiling'

Companies Engage In 'Credit Line Profiling'

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ANDREA SEABROOK, host:

To the world-wide credit crisis now. News today that the International Monetary Fund unveiled $16.5 billion in loans to bailout the government of Ukraine. The squeeze is hitting home in this country, too. Credit card companies are cutting the credit lines of some customers. And as NPR's Tamara Keith reports, they're not just looking at how promptly you pay your bills. They're checking out who holds your mortgage and even where you shop.

TAMARA KEITH: Some American Express customers have been getting unwanted letters in the mail. They basically say, your credit limit has been cut, and here's why. Among more traditional reasons like credit score and debt to income ratio, the letters contain some surprises. They say that customers' mortgage lenders and shopping habits are also a factor.

Mr. RICHARD BERK: Well, I believe it's actually profiling.

KEITH: Richard Berk (ph) has to two credit cards with AmEx and has recently had his credit limit cut on both, despite what he describes as a flawless payment history. He lives in West Hills, California, an area that has seen a lot of foreclosures.

Mr. BERK: I do happen to have a second mortgage on my home, a small one, which is through Countrywide.

KEITH: Berk doesn't know if his Countrywide mortgage, his neighborhood, or something else is to blame for his loss of credit. But he's mad.

Mr. BERK: You know something? I really had a good relationship with American Express over the years. I'm just not going to use their card until such time as they address the situation.

KEITH: American Express wouldn't reveal which stores and mortgage lenders send up red flags. But Kim Ford, a spokesperson for AmEx, confirmed in an email statement that, quote, "in our analysis, customers who have loans outstanding with certain lenders or customers who make transactions with certain merchants tend to have a higher proportion of credit issues or a higher probability of default." But she added, in bold, that these are not decisive factors, but just a part of a customer's overall credit profile. And American Express definitely isn't the only credit card company taking a closer look at its customers in this way, says John Williams, a senior analyst with Macquarie Capital.

Mr. JOHN WILLIAMS (Senior Analyst, Macquarie Capital): They don't generally discuss the specifics regarding these sorts of things, but it's fairly common knowledge that this is done. And it's not considered unusual. Everybody seems to do it.

KEITH: But AmEx is taking more heat for this than other credit card companies. Williams thinks this is probably because the company has been struggling recently with rising delinquency rates. It was long considered the credit card company of elite borrowers, and actually, up until the late '80s, it required all charges be paid off in full each month. But Williams says, in recent years, AmEx took on some less than platinum customers.

Mr. WILLIAMS: AmEx has been a little more aggressive than a lot of the other credit card lenders in going out there and offering credit to people because they needed to in order to grow the business. They needed to get a little more aggressive. Problem is that it's going to be very hard for them over the next year to really recover from a lot of the things that they're going to have to write off.

KEITH: The faltering economy has credit card issuers adjusting their risk tolerances and in many cases, cutting credit limits, and that's leaving a lot of customers frustrated. Dennis Perry(ph) lives in Lacombe, Louisiana. He owns a small motel and a couple of used car lots, and he has four loans from Countrywide. He says he's always paid all his bills on time. At the beginning of this year, he had a credit card with a $40,000 limit. Then, he says, it was cut to just above what he owed.

Mr. DENNIS PERRY: And then I paid it down to about $32,000, and then, they dropped my credit limit again to $33,200 now this time.

KEITH: Perry says the company told him it didn't want him to get into trouble, but he feels like he's just being chased down.

Mr. PERRY: Let me ask you this. What is my incentive to pay down my credit card now? If I make extra payments to bring down my balance, what's going to happen? They were - are going to penalize me by dropping my maximum, you know what I mean?

KEITH: Consumer advocates say this practice of following customers down as they trim their balances is unfair. Company officials say they're well within their rights to reduce credit limits whenever they want. Tamara Keith, NPR News, Washington.

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