Credit Line Profiling: Right or Wrong?

From NPR:

Credit card companies are trying to cut the credit lines of many customers. And they’re looking well beyond payment history — to who holds their mortgage, even where they shop. Customers are outraged, but card issuers say they are simply managing risk in tough economic times.

The rest of the radio show goes something like this: Customers get unwanted letters in the mail, saying their credit limits have been cut. American Express is one prominent example of companies who have been doing this.

NPR highlighted a possible Countrywide Home Mortgage link. They interviewed two people with Countrywide loans who had also received unwanted credit cuts. One of those men also lived in a neighborhood with a high foreclosure rate.

Both men were angry.

Companies say they’re within their rights reducing peoples’ credit limits.
They probably are.

However, they’re not within good service standards. If they reduce a credit limit, they should give a customer a warning on their account, along with a chance to appeal. It’s more effort on the company’s part, but is more palatable than simply slashing limits without any other kind of notice.

Not only that–credit profiling is giving companies like AmEx a bad reputation.
People will start canceling their cards, which can’t be good business. Angering customers is not a good policy. Especially when you have the power to mitigate the damage before it’s done.

  • Gus

    I was recently hit with one of these letters. It cut the Amex card’s credit limit in half.

    I think it was tied to one of our mortgages being a Fanny May loan of some sort as well as increased spending on that card at the beginning of the summer. My wife and I remodeled an apartment. As a vacation rental it now brings in 2 to 3 times what it used to with a month to month lease)

    I can see why I would be targeted for such a decrease though as I have a 100% loan (80/20). However it is on a house plus duplex property. we rent out one room and run a vacation rental that more than covers our entire mortgage…

    They also thought My wife and I where bringing in 7k per year… that may have been when we got the card and where in college, but we both have careers now…

    I hate getting grouped in the risky category as I am most certainly not the majority. Unfortunately their numbers can’t discern that.

    I would be nice if they could handle their customers better.

  • john

    they should definitely give prior warning and not lower the limit below the credit used so the customer won’t be hit with over limit fees.

  • t

    i agree with the lack of service standards. but i don’t think that people will start canceling their credit cards, if anything they’re more likely to apply for more cards.

  • StV

    I got a notice lowering my credit limit from “unlimited” to $1800 (on a six figure salary, never missed a payment to AMEX in 10 years).

    I immediately canceled my card and told the customer rep I was protesting the credit limit change – customer rep made no response whatsoever – just told me the card was canceled.

  • g

    Credit cards have been blamed for getting people in debt, and when they cut the credit limit they are slammed for making a responsible finacial move. If you notice most people who had thier credit reduced still had the available amount that they can spend and pay every month.

  • Holly

    They are allowed to cut the credit line, however, take a look at what the are doing to innocent people’s credit score. AMEX is cutting lines on people who have never been late and one’s who pay in full. I certianly understand if lines are cut on cardholders who pay late or in collections.

    The big problem is what AMEX is doing to the Credit Scores. When they reduce the line then the “Balance to Limit is Too High”. If your Line is 15,000 and they reduce it to $9,000 then it appears on your credit score “High Balance to Limit Too High” making to appear that you over-extend….again killing Credit Scores on innocent people.