Anyone who has read my blog for any length of time knows about American Express's penchant for using "spending patterns" to justify credit-limit reductions (see stories here, here, here, and here). Now hear this: American Express has decided to drop this risk-management tool from its underwriting arsenal.
From the New York Times:
In some instances, if it didn’t like what it was seeing, the company has cut customer credit lines. It laid out this logic in letters that infuriated many of the cardholders who received them. “Other customers who have used their card at establishments where you recently shopped,” one of those letters said, “have a poor repayment history with American Express.”
It sure sounded as if American Express had developed a blacklist of merchants patronized by troubled cardholders. But late this week, American Express told me that wasn’t the case. The company said it had also decided to stop using what it has called “spending patterns” as a criteria in its credit line reductions.
“The letters were wrong to imply we were looking at specific merchants,” said Susan Korchak, a company spokeswoman. The company uses hundreds of data points in making its decisions, she said, adding that the main factor in determining credit lines “has always been and still is the overall level of debt, relative to the card member’s financial resources.”
I've railed long and hard about this metric. I've argued that American Express doesn't even need to rely on this tool to make credit decisions. Seems American Express has finally acknowledged what I -- and others -- have been saying for some time. It's about time.
This still doesn't address some of the other things that American Express uses to gauge limits: who originated your mortgage and where you live. But it's a start. One day at a time, I guess.
Read the rest of the story here (link).
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