Monday, August 11, 2008

Are Your Shopping Choices Hampering Your Ability to get Credit Line Increases?

If anyone wonders why I think credit is a game -- an important game, mind you -- look no further than the things credit-card companies do. Would you be surprised to learn that your first purchase (with your brand new credit card) could impact the way your credit-card company does business with you in the future? What if I told you that because you shop at XYZ, you could be denied a credit-line increase? Outside of my credit-geek circle (you know who you guys are), people are astonished by the importance that card companies place on customer purchases.

I first learned about first-purchase models about a year ago. An online friend of mine, who hangs out on CreditBoards, posted a message about what not to buy when it comes to first purchases. I was intrigued by his short list.

Turns out that a cash advance, as a first transaction, is a big no-no. That's not surprising, by the way. Cash advances of any sort (first purchase or not) raise red flags with card companies. If you're tapping cash at 24%, a card company probably has good reason to wonder what's going on. Number two on his list was beer and spirits (from the store). Online porn came in at number three. I was somewhat surprised by numbers four and five. An infomercial product, at number four, is not a good first purchase. Ditto television-shopping-network purchases. Gasoline, discount stores (think WalMart), and travel purchases are seen as neutral.

These first-purchase models are used for credit line increases (down the road). (As an aside, first-purchase models are also used to predict default, fraud, and profitability as well. For this blog entry, though, we're just focusing on credit-line increases.) You broke the card in with a $49 subscription to your favorite online porn site? Thought it made sense, while you were watching the Home Shopping Network, to buy some OxiClean at 2 in the morning from Billy Mays? While it may have made good cleaning sense, it didn't help your chances for good credit line increases in the future.

When I explain this first-purchase modeling to people, I invariably get reactions like this: "How unfair is that!" Or "Why should my chances for a credit line increase in the future be dictated by my first purchase?" Others simply say screw it. If card companies, these people say, want to deny credit-line increases, or severely restrict them, based on what I am buying, oh, well. These people aren't playing the game.

I take a different approach. Since I know card companies engage in this first-purchase modeling, I make first purchases at places that should enhance my chances for a credit-line increase. I may not like the game, but if this is what credit-card companies are doing, then, hey, I'll play the game. With the exception of my American Express card (which we'll discuss in a moment), my first purchase is always done at Starbucks. I buy a hot cocoa for a whopping $2.

After that first purchase, I'm free to drop by the liquor store on the way home, purchase some whiskey, go home, log on to my computer, buy a subscription to my favorite porn site, and have a one-man party. The only thing that counts is that first purchase. So, Starbucks it is. Meanwhile, a good first purchase is not confined to Starbucks. Restaurants, where you present the card in person, would also make good first purchases. Higher-end retailers would be just as good.

I told you that we'd get to American Express in a moment. Let's discuss it now. It's clear that American Express is a big believer in risk modeling. Its most recent earnings conference call was peppered with references to risk models. American Express, which likely uses first-purchase modeling, also models for on-going purchases. If you happen to shop at places where less credit-worthy American Express customers also shop, there is a chance that American Express could deny your request for a credit-line increase. In other words, you're being penalized because you shop where some of American Express's more risky customers are shopping. Don't believe me? Look at this denial letter that American Express sent to a customer who requested a credit-line increase on his Blue card in June.

American Express cited four reasons for the decline. We're most interested in reason number three: "Our credit experience with customers who have made purchases at establishments where you have recently used your card." Here's what American Express is saying: Some of our customers shop at XYZ. These customers, as a group, tend to be more risky (based on our number crunching). Because you shop at XYZ, we think that you could be more risky. Hence, you're not getting an increase.

You may not like the game, but American Express is playing it. Your purchases are being tracked by American Express (and I imagine other credit-card companies as well). If you're shopping at the wrong place, your request for a higher limit could get denied. It certainly seems unfair. Indeed, it is unfair. But that's the game.

Now that I know what American Express is up to, I'm playing the game as well. I'm only going to use the card at places where I think it might be safe. There can be little doubt that my card won't see as many purchases as American Express would like, but they're partially to blame. If they didn't ding me for shopping at the wrong place, I wouldn't worry about my shopping habits. And if you're wondering, my first purchase occurred at a high-end retail store on the west coast.

In the end, here's the deal. Most consumers don't have a clue about this predictive-analytics stuff. It's fairly esoteric to say the least. This blog entry should be used at a starting point. I imagine that you could Google your way to a ton of information on this topic.

In the meantime, it's enough to know that American Express, and others, are using your purchases to determine whether you're getting credit-line increases now or in the future.

Game on!

To learn more about predictive analytics:


  1. Hmm good stuff.

    Whats your take if you dont use the car at all for 3 months (i am in Afghanistan) then use it at a nice restaurant when i return?

  2. also forgot to ask- What do effect do you think a Balance Transfer would have?

  3. Lupo, as long as you use the card at a place where you must be present to make the transaction (unlike the Internet), and it's not one of the places I pointed out as suspect, you'll be fine. That's why Starbucks is a good first-purchase spot. That's why restaurants, of any sort, are good.

    If you have a place there is afghanistan, feel free, Lupo.

    By the way, I have gone a few months without using a card before (without making a first purchase). I haven't seen any ill effects.

  4. As for the question on balance transfers, let me get back to you. I don't know the answer to that. I would think that it's neutral. But let me find out, Lupo.

  5. I have a new card and plan to take it to Vegas in two weeks time. No purchase yet, what would be my first ideal purchase? Looking for something small...Starbucks, perhaps?

  6. Starbucks would be perfect. I buy a $2 cocoa. It's a ritual now.

    Have fun in Vegas.

  7. Great post. It's about time people other than credit geeks become (or geeks in general) become aware of what data are being gathered about them and see concrete examples like this of how it is used. There's no stopping the train, but people will know to stay off the tracks, and buy the booze at the grocery store with cash and without the frequent shopper card. Today it's creditors, tomorrow (if not today) it's your health insurer.

  8. DM, very true. With as much data as these people have on us, it's just a matter of time before they're using it on other things. Health care is definitely on the horizon. See Google Health.

    I'm hoping that my blog entry makes people aware of what our credit-card companies are up to. They're watching everything. American Express, I imagine, is really on the cutting edge of this stuff.

    Thanks for reading, DM.

  9. I read the thread on CB on this topic about a day after I made my first purchase on my card. Thankfully I made it at Panera Bread. I'm going to assume that Panera is on par with Starbucks in terms of a first purchase (and in the type of clientele).

    I've used my new card mostly at restaurants because I get the best rewards there (5 TU points per $). It got me thinking though, would cc companies take into account the location of the purchases? I'm not necessarily talking about rich area/poor area. But I used my card around where I live, but then spent a weekend in RI on vacation, also visiting a Panera. I wonder what the cc companies have to say about those that travel a lot? After RI, I spent the next weekend visiting my school.

  10. Rob, Panera would be right on par with Starbucks. Yep. You did just fine.

    As for shopping location, I assume that these credit card companies measure everything. I'm not going to get that anal, though. First-purchase models are one thing; but worrying about the location of where I am shopping? I am not going to worry about it. Even I have my limits. Haha.

    That said, I wouldn't be surprised if location is part of their fraud models. Indeed, if you're in an area where more fraud occurs, you might be more likely to get your card declined. I think that's probably a more likely metric that card companies use.

    Rob, thanks for writing.

  11. My first purchase on my Amex was on-line. It was Credit Secure by Amex. I hope this kind of on line purchase won't get me into the trouble.

  12. Marat, how ironic would that be if American Express dinged you because you shopped online and supported one of its partners! But funnier things have happened.

    Truth to tell, I almost fell into the same trap with CreditSecure as well. When I set my account up with American Express, I almost made CreditSecure my first purchase. Then I thought twice and held off.

    But there's good news for you, Marat. As you're well aware, the first 30 days are your trial period with CS. As a result, your card is not billed. Only after you've decided to join up full time does your card get charged.

    So, if you made a different purchase between the time you signed up for CS and the time you actually got billed, you will be just fine.

    Finally, I wouldn't get in a twist over this stuff. It's enough that you know that card companies do this stuff. In the future, if you care, you can change your purchasing habits accordingly.

    Thanks for reading, Marat.

  13. It would not surprise me one bit to find out that Amex uses zip codes of first purchases, as well as the bulk of your purchases to build some type of model. The equivalent of Beverly Hills and Compton is the same as Starbucks and online porn?

  14. Lupo, nothing would surprise me with American Express. But redlining is illegal, so I'd think that American Express would tread lightly in this area.

    But I get your point. American Express builds a model for everything. What it does with the data that are gathered is anyone's guess.

  15. There are not many "high end" stores where I live, and yet I am so exicted to use my new AMEX card. Other than Starbucks and Macy's do you have any suggestions?

  16. Anon, any place where you must present your card in person is fine. A restaurant would be fine. A nice store would be fine. A coffee shop would be A-OK. You're just trying to stay away the kinds of places that are considered negative in my column.

    Have fun.

  17. I never made it to Starbucks yesterday, but I used it for a purchase of less than $10.00 at Seattle's Best Coffee shop inside of Borders Books.

  18. Anon, that's a fine first purchase.

    By the way, did you know that the Starbucks inside of Barnes and Noble are not actually owned by Starbucks? Instead, they are actually being run by Barnes and Noble. They just happen to sell Starbucks there. If you ever look at your bill, you'll see that it comes up as B&N -- not Starbucks.

    I wonder if Borders has the same kind of deal. They simply sell Seattle's Best inside. Regardless, Seattle's Best and Borders books would be fine.

    Thanks for reading, Anon.

  19. What a fantastic blog!
    I have worked so very hard to get my scores to the perfect level by playing every game I learn about.
    Keep my balances at 10% or less, shop carefully as mentioned in your article, and pay on time every time.
    It is working.
    Thanks for the extra insight!

  20. SB, sounds like you're already doing everything you need to do. I guess my blog just serves as a reminder and reinforcement.

    Carry on.

  21. I know the Starbucks is owned by B&N. The coffee, IMHO is better at a regular Starbucks,I think because their workers are trained better but the coffee at Borders is pretty good. I heard somewhere that Seattle's Best is a subsidiary of Starbucks.
    OTOH, I called the "magic" number at Cap1 and was granted a CLI on my 2 cards. Happy dance for me.

  22. Anon, yep, Seattle's Best is owned by Starbucks. AFC Enterprises used to own it, but Starbucks bought the company from AFC in 2003.

    Regarding B&N owning the coffee shop inside its stores, I just wanted everyone to be put on notice that the charge would not show up on the credit card statement as Starbucks. Instead, it would be B&N.

    That said, I can't with 100% assurance claim that every Starbucks at a B&N is owned by B&N. There could be an occasion when Starbucks might own it. I'd ask.

    Finally, congrats on the CLI magic number, Anon.

  23. I always make my first purchase at a gas station using pay at the pump. I had problems once in the past where a new credit card did not activate properly and it was rather embarrassing. I would much rather be rejected by a gas pump than a human.

  24. Anon, be careful there. Paying at the pump is a fraud flashpoint. That's where crooks often go to test out cards they've stolen.

    I've never had a card declined during first purchase. Though it has happened to you, I don't think you should be in fear of it. I imagine that it was an isolated event.

    Regardless, thanks for reading.

  25. I can't give out my name, CM, but I guess you know who I am, as I am active on CB, and you liked my blog. I had a Hooters card while I was rebuilding, but they would never give me a CLI or waive the "fee", so I deflated my Hooters. I had a one year history with them. I'm doing quite well with the others. And, guess what, my dear daughter landed a job today! I thought this would never happen. She gets about 2 offers for Cap1 in the mail a week. I shred them. Sigh.....

  26. Anon, sorry to hear about your hooters. I never saw your original hooters so I can't make a comment on the current limit. What's more, if they won't waive the fee, and you don't need the card, then I suspect you closed it altogether?

    By the way, congrats on your daughter.

    And, yes, I know who you are. Nice to see you over here.

  27. My Hooters was for 1k only and a $59.00 fee, I kept it for one year, and only carried a balance for one month. I PIF all the others. I requested they list, "closed by consumer" on my CR, but they just listed, "closed, no balance", something like that. That made me mad. Do I need to write them a letter, will it do any good? I still am locked out of AMEX, Citi, and Chase. They all declined me. I feel so sub-prime now. How can I break out of the cycle? My BK was d/c 10-05, I have a long wait. Thats another topic for you. What cards are prime and what are sub-prime? Once sub-prime how hard is it to get prime? I'm almost at the 700 club.

  28. Anon, I don't think the "closed, no balance" will hurt you during a manual review. It's neutral. That said, you could always call them and request that they say it was closed by consumer. It can't hurt.

    As for prime v. subprime, that's all in the eye of the beholder. I think Wamu is very subprime. But it has some features that make it prime. For example, there are no fees. They have been known to issue high limits. They offer PFICO. They give out decent interest rates. Still, they handle some of their business in a subprime way. For example, I cannot request a CLI on the card. That's subprime to me. Can't request APR reductions, either. Again, that feels subprime to me.

    So, as you can see, it would be tough for me to nail down what prime and subprime are.

    Time is your friend, Anon. Keep plugging away. Eventually one of the big banks will let you in. Until then, take care of your current accounts and bide your time.

  29. I just came across your blog today - thanks so much - it's really informative. :) My question regards the best way to handle using an amex green card that has no preset spending limit - obviously, I will be paying off the balance every month, but what is the best strategy to keep the card active?

  30. Mona, I wrote a piece on AMEX a few weeks ago. You might want to read it. Here is the link:

    At the end of the day, though, we all have to handle our accounts in our own way. I can't instruct you on how to do that.

    What I would do is figure out what you're trying to do with that account, and then handle it accordingly.

    Check out my AMEX piece, though. I think you'll find it interesting.

  31. Thank you! I will do that :)

  32. Cm, love the blog and your posts on cb. I was just approved for a citi bank rewards card. I don't have a Starbucks where I live but a Macy's store. Is Macy's a good first purchase?

  33. GREAT BLOG! CM, would Cabela's be a good first purchase?

  34. Macy's is a fine first purchase, Jones. You'll be presenting the card in the store (in person) and it's not one of the types of places that are seen as negative.

    You'll be fine.

    Thanks for reading.

  35. Anon, same response that I gave Jones. I imagine that Cabela's would be a fine first purchase. No worries.

    Take care and thanks for reading.

  36. Hi Credit Matters,
    I'm Baaaccckkkk! hehe.

    As you know, I started my credit history journey just 2 years ago. I just checked my fico scores. I don't know if you can get a better deal than what I paid for them. 20% off, which equalled to a little more than $10.00 off. $38.00 for all 3 scores. Is there a better deal?
    Well, TU is 755 EQ is 743 and EX is 752. Is that pretty good with 2 years history, a chase Visa Platinum Rewards, and a Amex Gold on the way?
    By the way, the Amex was hard pulled on Experian, as was my DirecTv from last October. I hear inquiries last a year. That would mean DirecTv goes away in 2 months. That would leave me room for November's attempt at Saks Fifth Ave. What do you think?

    Also, your blog about Amex and the data being collected at where and how the card is being used. Right now I use my Chase for 4 things, in order: DirecTv Premier monthly subscription, Borders once a month, gas twice a month, and incidentals. I pay in full every month via Chase's auto-bill pay.
    After breaking in my Amex Gold at a Macy's, and paying in full (showing that I am a classic Amex customer), can I use my Amex for DirecTv as a method of payment? Or will Amex see DirecTv negatively?

    I'm curious as to how Amex views it's customers when it comes to regular monthly Pay-Tv services/payments.

    Thanks again!
    Robert, Detroit/Windsor border guy.

  37. Robert, let's take it from the top. First off, congrats on the solid scores. Make sure you consolidate that score. Even though your scores are heading up there, your credit history length is still relatively short. Thus, you are not yet a slam dunk for everything you apply for -- at least not yet.

    Regarding, that's the price I get. I imagine you used CPPSAVINGS for 20% off. That's what I use.

    Inquiries, meanwhile, remain on your credit report for two years. Their impact is FELT for 12 months. Thus, after 12 months, your score is no longer impacted by the inquiry. A year later, the inquiry will fall off the credit report.

    Robert, don't live in fear of using the American Express card. It's impossible to know what Amex might think of DirecTV. My guess is that it wouldn't be a problem at all. I'd stay away from high-risk purchases -- like strip joints and casinos -- but otherwise I wouldn't sweat it.

    Finally, any particular reason why you're looking to bag the Saks card? That is one of the few cards that hasn't really grown with me. I am now using it sparingly.

    Robert, congrats again on building a great score in such a short period of time.

    Keep up the great work.

  38. Thanks for the quick answer! Your faster than Jamaica's sprinter Uzain Bolt!

    I imagine that even high income/wealthy DirecTv customers pay via Amex. I can't see how a wallstreet stockbroker living in manhatten, a hedge fund manager living in Martha's Vineyard or a celebrity in Hollywood, would bother and want to write a check every month to DirecTv.
    So I would think myfico see's this as a normal, and everyday occurance.

    As for Saks, my mother used to live in CHicago, and I was introduced to Saks on Michigan Ave in my late twenties. I have been to Nordstrom. Saks is more of a comfortable fit when it comes to clothes, accessories, atmosphere and service. They have some very good rewards, like Nordstrom's does.
    I'm not knocking Nordstrom, it's just that Saks is more my style.
    Like pay tv, I prefer DirecTv than DishNetwork. It's just a matter of taste.

    I read your blog on Saks, and you readily admit that the card didn't get much action, therefore, it didn't grow much. A vicious circle you wrote.
    Swipe it more at Saks CM! Make it grow with you, and maybe you'll be a convert from Nordstrom's.hehe.

    Robert, Detroit/Windsor border guy.

  39. Robert, correct. Myfico doesn't think twice about all of us using the discount. Indeed, I think it's built into their model. They know the hard-core people wouldn't pay $48 for three scores. But $36, or whatever it is, isn't SO bad (though I think it's still too high). I buy scores once a year.

    As for my quick replies, they won't be so quick starting today. I have a full slate of classes. On Tuesday and Thursday I will still be quick; on MWF, well, fuggedaboutit.

    Thanks for the tip on Saks and Nordstrom. Looks like you have a good reason for getting the Saks card. Good enough for me.

  40. Jim in the City of New YorkAugust 30, 2008 at 11:40:00 PM EDT

    I'm amused... looking back at my records, my first purchases with Washington Mutual, American Express and Merrill Lynch/FIA was Subway, Paypal (for an online purchase) and McDonalds respectively.

    Not exactly the most ideal first purchases, but I suppose overall consistent with my disclosure that I'm a full-time student.

    Prior to CB, I never gave much thought to first purchases.

    I mean, I thought it was obvious enough that I should never use my card to purchase alcohol (I'm still underage for that, but even if I wasn't...), porn or any "questionable" materials that I wouldn't be fond to keep a paper trail.

    Who'd have thought the creditors would hang their necks over it (moreso nowadays)?

    On an off-topic note: It seems to be more of an insider's/frequent shoppers thing, but next time you notice that the regular cashier line is long, but the BN-Starbucks cashier line is significantly shorter (as is frequently the case at certain NYC locations), just ask the BN-Starbucks cashier to ring up your books even if you don't purchase a drink per se.

    Not of too much use to me since I dislike Barnes and Noble (not fond of store policies and paying for "member" discounts) and its chairman (he's an alumni of my high school, we've met and I never felt a "good vibe" from him.). But hopefully, it might be of help to the readers of Credit Matters ;-)

  41. Credit MattersAugust 30, 2008 at 11:48:00 PM EDT

    Jim, I am glad that you've stopped by. Oh, and I am glad that you're amused. This stuff is certainly amusing.

    And good to know about waiting in line at B&N. Since we already know that the "Starbucks" inside B&N isn't really a Starbucks at all, I guess it makes sense that they would ring up our book purchases. Good tip, Jim.

    I haven't seen your screen name around here before. Stop making yourself so scarce. Drop a note some time.

    Take care. And good luck on your studies.

    Thanks for reading.

  42. First-purchase modeling...really?

    I had no idea, so not only first purchases are being watched, your saying american express keeps track of daily usage on the card as well?

    It sounds like after reading your article, buying gas at the pump would be a higher risk than other purchases. Not only that, but I have also used the card many times to pay for things online such as ebay fees and such which im guessing looks bad to the creditor. It looks like im going to have to change some plans and watch what I buy with that card now.

  43. Anon, yep, really. These companies are monitoring everything.

    But you know what's so great about my columns? I just write them. It's then up to my reader to figure out what to do with the information contained in them.

    My American Express card doesn't see certain kinds of purchases. But that's what I have decided for myself. I know other people who buy everything and anything with their Amex cards.

    Best of luck on whatever you do, Anon.

    This upcoming Thursday I have a piece on credit card companies monitoring your Web site moves (when you're logged on to your card company's site).

    Take care.

  44. Okay, since I'm taking all this as gospel (yes, the pressure is on you. Credit Matters. LOL!) I used my new Penfed card at Starbucks as my first purchase.

    I had to explain to the cashier that I don't come to Starbucks often, therefore I had no clue what to order. After the initial interrogation, I wound up with a latte macchiato.

    Then, she asked what size. I asked for the smallest size, which would be "tall."


    Anyway, if this "predictive-analytics stuff" is true, I'll be off to a great start. Anything less, I blame Credit Matters!


  45. that's funny VR as I got my penfed CC less then a week ago and was walking towards Starbucks as I activated it. 2 minutes later and got a Iced tall no ice no whip black & white mocha. Yes Yes, I on the other hand not only have been there before, but I worked there before too :) and know many of the current employees so I got a 30% on my drink and 1.25% cash back. LIFE is good lol

  46. Glad to see you two are having so much fun. Vibe, I'll just blame hegemony if it's not right. Ha!

  47. I wonder if you get extra points for spending at a "branded" card's store first.

    Something like Sears Citibank Mastercard and your first purchase being at Sears.

  48. Drew, here is the key. You want to shop at a place where it shows that you have discretionary income. That's why Starbucks is a good first purchase. People who have $5 for coffee are perceived to be spending money on something that is not a need. Another key aspect is that these are places that also require card presentment in person.

    That's why dinner works well. You are out spending discretionary dollars and you're doing it in person.

    But you're talking about using the Sears card at Sears for the first purchase, right? Not sure how that works, pal. I imagine it's just fine, though.

    Thanks for the note, Drew.

  49. Oh, I'm sure that Citi wouldn't ding you for your first purchase on your Sears card being at Sears.... I was just wondering if you got "extra credit" :-)

    The scoring might end up something like this:

    Cash Advance = -5
    Online Porn = -3
    Walmart = 0
    Starbucks = +1
    Macy's = +3
    Sears = +2 normally, +3 for it being your Sears Card

  50. Drew, love your thinking, though.

    Thanks for the chuckle.

  51. Great website, btw. I have to comment that I'm one of those unfortunate souls who was always a day late and a dollar short when it came to the credit game. I've bought anything and everything on my cards, including my AmEx, had late payments here and there, and even had a BK ch.7 back in 05, and was still somehow approved of many cards, a few by major banks, had several credit limit increases, & seem to be on good standing.

    But I will say this on AmEx: they refuse to increase my potential spending limit on my charge card, it's impossible to get approved of their regular cards, in my boat, and their customer service is often not very friendly. Perhaps that's just a coincidence.

    Oh well, tough, then I guess I just won't feel bad about being late on my next AmEx bill, since they won't report it as being late on my credit report if it's under 30 days, (if you follow the game correctly) and I guess I could care less what they include in their internal records, since my BK already makes me look bad, at least for the next 5 or so years, so by that time all things done now, including purchases at "negative" places and late payments, really shouldn't matter.

    People change as time goes on anyways. Just b/c you bought that online porn or shopped at walmart yesterday, doesn't mean that's the perfect model of you 5+ years from now.

    The credit game: two can play at that.

  52. this seems just profiling and unjust if you handle you finances then you should not be penalized for where you decide to shop that is just like no cli just because of where you live and dare i say other mmotivations

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