For those of you who read my blog on a regular basis, you're yawning at that headline. American Express rates credit risk by where you live and shop? Next thing you'll be telling me is that the sun rises in the east. Who knew.
Actually, that headline comes from MSNBC.com this morning. Apparently, MSNBC is finally getting around to warning its readers about American Express's most recent risk-management tactics. Anyhow, back in July I wrote this story about American Express's game plan (link here) (and my game plan as well). Meanwhile, I have highlighted how shopping choices hamper your ability to get credit-line increases (link here) as well. And, last week, I discussed American Express's slash and burn campaign (link here).
All of that said, my readers (especially the readers who have an American Express card) can never read too much about the card company they've decided to do business with. As such, you should read MSNBC's story this morning, which details American Express lowering limits on a customer who looked ripe for a fall (lots of warning flags flying over this customer).
From the MSNBC story: Amex rates credit risk by where you live, shop (link)
Asked about the letter to Gilleland, which cites shopping practices and merely obtaining a mortgage from a lender who also loans to other borrowers with "credit risk," Forde said, “You have to remember that this is one contributing factor. That’s not the sole reason, but it’s certainly data that we’re looking at.”
And this passage:
Ed Mierzwinski, federal consumer program director with the U.S. Public Interest Research Group, said, “There’s no question that this type of behavioral score is used by everyone. They just don’t like to admit it. … It sounds like American Express is dialing up the impact.”
When you read the story, take note of some of the things Mr. Gilleland was doing. He was funding his business with these cards. What's not clear from the story is whether he held Amex business cards. If they were personal cards, there was probably a clause in his credit card agreement that said the card could only be used for personal expenses -- not business expenses. It's difficult to know if that played a part as well.
Additionally, Mr. Gilleland appears to be on the financial ropes. His house is upside down and his expenses for the business have been climbing. Higher expenses aren't bad in and of themselves, but if revenue is not climbing even faster, you've got trouble. What's more, American Express cited these reasons for the credit limit decreases: payments that were too small (not paying enough of the balance off each month). His utilization ratio was too high for Amex's tastes, too many inquiries, too many new accounts (lowering average age of credit history), too many consumer finance company accounts on the credit report (usually lenders of last resort), and weak credit score. Amex is probably spot on here. Mr. Gilleland looks ripe for trouble. See the American Express letter here: American Express Letter (link here).
American Express to Cut 7,000 Jobs
American Express Appears to be Stepping Up Its Slash and Burn Campaign
American Express -- The Game Plan
Are Your Shopping Choices Hampering Your Ability to get Credit Line Increases?
- American Express's Financial Review System is Flawed, But I Respect Its Right To Request A Financial Snapshot From Time to Time