While the exact way banks and other credit lenders come up with individual credit scores is still somewhat of a mystery, there are several general rules of thumb that most people know. Carrying a lot of debt is bad for your credit score, especially when you have over half of your credit card credit used up. Late payments versus timely payments and past spending habits don’t bother consumers as part of the credit score, but what if you were penalized by the bank because you used a credit card at a bar?
This invasion of privacy and decision to penalize people based on their personal lives has consumers up in arms. This information came out from a suit that was filed by the Federal Trade Commission (FTC) against CompuCredit, a credit card issuer. The suit claims that CompuCredit used personal information in their formula to create deception that made it impossible for consumers to accurately know how to improve their credit score.
Some of the things that were used to knock down credit scores: trips to a massage parlor, re-treading a tire, running up a bar tab, or visiting a marriage counselor? That’s right, choosing to see a marriage counselor to help your marriage can result in your credit score being lowered by dishonest lenders.
What most people don’t know, and what many experts weren’t even aware of until recently, was how prevalent the use of personal information like this was by many companies. The numbers aren’t all that matters to many companies, but they can, and often will, penalize you based on life style choices. This infuriates many consumers, since a credit score can affect your ability to buy a house, get loans at a lower rate, and get better credit card deals. Why should a company be able to penalize you for your life style if your finances are all in order?
This has far reaching effects for many consumers. Little did many know that buying groceries with a credit card and paying cash for a couple beers at the bar could literally have made their credit score far higher than doing it the other way around. There is definitely a “Big Brother” quality to what credit companies are looking at in determining a credit score, and even worse is the fact that this does not seem to be an isolated incident but a common practice for both this company any many others.
This is not the first time that the CompuCredit company has had a run in with the FTC, but this isn’t just a one company problem. As one counsel for CompuCredit pointed out in defense of the company, these practices in using personal spending habits to help determine a credit score is a common practice all across the credit industry.
Credit industry experts say that this practice isn’t likely to decline, even with the FTC filing suits against the most dishonest of lenders. Many people worry that with the use of personal information that the credit lenders may design their credit scoring systems in ways that are unfair, biased, or even outright prejudiced. Even worse is that many companies, like CompuCredit, will be hesitant to let the common consumer know what personal factors will be used in helping to determine credit scores.
CompuCredit was not in trouble for using life style choices of consumers in their credit scoring, but for their refusal do disclose this information to credit card holders. Because of this, more companies are likely to use the personal and life style habits of consumers to lower their credit scores.