Your Credit Card Company Is Building A Psychological Profile Of You
The next time you apply for a credit card, your credit report and income will be only a part of the criteria used to determine your creditworthiness. For that matter, as long as you have the card, what you use it for will be noted and added to a growing set of data that makes up your psychological profile, which will then be referred to every time the bank deals with your or reevaluates your risk as a customer.
The New York Times Magazine takes a look at this new method of determining credit risk, pioneered by Canadian Tire executive J.P. Martin about 6 years ago.
Martin's measurements were so precise that he could tell you the "riskiest" drinking establishment in Canada - Sharx Pool Bar in Montreal, where 47 percent of the patrons who used their Canadian Tire card missed four payments over 12 months. He could also tell you the "safest" products - premium birdseed and a device called a "snow roof rake" that homeowners use to remove high-up snowdrifts so they don't fall on pedestrians.
It's not just that what you buy reflects your socioeconomic level and current financial status, however; what Martin did was take the raw data and tease out personality traits that explained the the purchases while predicting future behavior.
Why did birdseed and snow-rake buyers pay off their debts? The answer, research indicated, was that those consumers felt a sense of responsibility toward the world, manifested in their spending on birds they didn't own and pedestrians they might not know. Why were felt-pad buyers so upstanding? Because they wanted to protect their belongings, be they hardwood floors or credit scores. Why did chrome-skull owners skip out on their debts? "The person who buys a skull for their car, they are like people who go to a bar named Sharx," Martin told me. "Would you give them a loan?"
Lenders have been using this sort of data mining ever since, but until recently they've kept it on the down-low to avoid triggering any privacy fears from customers. Now, with billions of dollars of losses from formerly profitable customers (i.e. the slightly risker ones) who suddenly can't pay, the lenders are using their psychological data not only to screen for the "right" sorts of customers but also to try to convince the bad ones to pay off their debts.
There's another reason for this, too: it helps build a stronger relationship with the customer.
If a credit-card company detects unsettling patterns, it might start cutting credit lines, raising interest rates or accelerating repayment schedules. (Companies are expected to withdraw $2.7 trillion of credit by the end of 2010, according to a March report from the Meredith Whitney Advisory Group, a banking-analyst firm.) But the most useful information the card companies are deriving from their data are the insights that help them deepen their relationships with customers, particularly when a cardholder is going through a rough time. One of the strongest conclusions of the psychological studies is that cardholders are most likely to pay the bills of those companies with which they have an emotional connection.
"What Does Your Credit-Card Company Know About You?" [New York Times Magazine]
(Photo: aturkus)
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Comments:
@katieoh: my daydream project for the weekend: how does one go about thwarting the assembly of an accurate profile? And does that help or hurt?
I would like to see my profile. All I buy is gas and fast food so I wonder what they would say about me.
Actually, I buy birdseed for my cats' entertainment, putting it outside their favorite windows so they can get all excited about the birds they can't get to. I tell the cats, "I am buying you friends."
Oh, but maybe I shouldn't tell my CC company that ...
Oooookkk time to start paying for the wa-wa balls and transsexual videos with cash...
Hooray for data mining.
Someone should reverse engineer the system and publish a guide of what to buy when you want to make the card company think better of you.
@Chris Walters: We actually just got a significant bump in the credit line on one of our cards, and I found myself wondering if it was due to the impending baby -- are we seen as more responsible now? Better risks? More likely to carry a balance buying stuff for the baby but more anxious to pay it off?
It only occurred to me because EVERY COMPANY ON THE FREAKING PLANET has been sending us baby-related special offers and rates and deals and coupons. If our insurer knows enough to know to drop my husband's rates now that he'll be a dad when we haven't seen our agent since before I got knocked up, I'm betting the credit card company knows it too.
@Chris Walters: Clearly, buy a snow rake, rake the snow off of Sharky's, and then buy yourself a celebratory beer. And then feed some birds from your newly be-skulled (?!?) car.
"People who bought carbon-monoxide monitors for their homes or those little felt pads that stop chair legs from scratching the floor almost never missed payments."
Now I can't decide if I'm glad or pissed I put both those things on my card. In the last year. Like on the one hand, yay! The think I'm responsible! On the other hand, DAMMIT, my CC issuer is psychologically stalking me.
@katieoh: If it wouldn't probably kill whatever profile I already have, I'd go out and buy "intimacy aids", birdfeed, twine, a cardboard box, and a CornBaller. Just to see what would happen.
@Eyebrows McGee (popping ~May 29): doesn't that just exhibit good common sense. Oh I don't want to die inhaling CO and I don't want my nice hardwood floors getting all ruined, therefore costing me money. Same thing applies to making timely payments...just good old fashioned common sense
Considering the vet bills recently put on my Visa, they must think I'm the crazy cat lady.
I shudder to think what my profile indicates, While I bought some of those felt pads I also frequent divey bars
@Eyebrows McGee (popping ~May 29): Yep. I was wondering if you'd read that part yet and were commenting on it, or if you were just thinking like a credit card company.
@sponica: Actually, the CO detector was because my state mandated them within 15 feet of all sleeping areas and I finally felt guilty enough to go buy one. :P I'm still pretty annoyed about it (the state law), tho.
Interestingly enough, about 15% of my income in the past 10 months has gone towards gun and ammunition purchases. I know my cc company is just praying they don't have to come to try and collect from me...
I'm thinking my recent frequent ammunition purchases are making my CC companies either
A) Believe that zombie invasion everyone is banging about is real
or
B) We might not want to upset this guy with a rate hike
Now they just need a way to block the tracking of individual purchases, so they only know how much I spent and where I spent it. Because that's really all they need to know.
Though, at the very least, you could probably manipulate it by having multiple cards, and using different cards at different places.
So... I should stop buying guns, pixie stix and restraints with my credit card?
/or maybe stalker-killers are GREAT credit customers
//"she was always so quiet... and she paid her bills on time"
At what point will they start monitoring your purchases for the government? They'll start flagging people who by Catcher in the Rye and a handgun at the same time at the local Walmart.
@Eyebrows McGee (popping ~May 29): My boss does that for her cats as well, lol. I don't need to because our apartment complex is covered with oak trees and my boys love to watch the squirrels play. I think one of the squirrels is malicious though and taunts my fat kitty in a Tom n Jerry type fashion, that lil thing won't make it if my Bastien ever bolts out the door.
Big Brother , 1984 , air travel - take your choice. Everything you do in life will become the equivilent of a job interview .
Well , job security for these computer programs who make these profile programs and for those account managers who use them . At least somebody gets a job out of this .
A cash/underground economy is coming quicker than you think . The credit card companies are going to whine ok you want to regulate us try getting credit now mother frackers . People won't be willing to go through this crap for every financial transaction in life . A truely novice idea would be to simplify the credit process wether if be just charging another month's interest for being late and just relying on a customer's record with you .
And would profiling be legal ?
i've never had a credit card....i want to perform an experiment.
1. get two different credit cards.
2. use one to buy chrome skulls, beer, guns and ammo
3. use the other to buy birdseed, little felt pads, snow shovel thingies
4. see how the interest rates compare on the two cards after a year or two
that would be quite interesting, i think.
This doesn't surprise me at all. Just a couple of weeks ago I applied for a store credit card (to get the discount) They called to verify my identity by asking questions like, could I verify my sisters birth date? Like what does that have to do with my ability to pay my bill I would like to know.
I never realized that credit card companies were able to track the line items of a purchase, rather than just the amount and store. Are they looking to see whether I'm buying the name brand tuna or the store brand oat-o's? Are they looking to see if I use coupons? Even if they're not looking, are they STORING that information?
Do they really need to know how often/how many condoms someone buys from CVS? Will they cut my limit if they see I'm buying a lot of pregnancy tests? What if I'm buying lots of books about how to start a business, and they see that as a high risk activity (but in reality I'm just reading about it for recreation).
There's a lot of what-ifs that really bother me about this, but the biggest concern is really that I don't feel like I was ever informed that they would have line-item information about my purchases.
Can anyone dig up any language in an agreement that says that they do/can, and if so, what privacy options there are, if any?
This is getting out of hand. Risk management is one thing, but if insurance companies get a hold of this info, we're all screwed. Honesty is the best policy, over-the-shoulder cloak-and-dagger spying isn't. (Enough hyphens?)
Years ago, we all imagined the CIA would have this info (which is bad enough). Handing it over to CC companies (historically, not the most trustworthy or honest folks) is worse than we thought.
Or, maybe it's because I don't buy birdseed.
On the flip side, I'm behind on a few payments (burn me at the stake, go ahead), and I've found that, recently, any contact I've had with CC company reps and (occasionally) collections agents, everyone has been polite, understanding and not trying to antagonize me. If that's the good that comes out of the recession, then it's a start. If that's the good that comes out of data mining, then throw me back to the wolves of yesteryear. It's a small sacrifice for the big picture.
@Chris Walters: Pay with cash? I was a bit creeped out when I realized that our bank branch manager could look at every place I shopped any time she felt like. We were running through transactions looking for one that should not have been in there.
I already refuse to give out my phone number at retail stores no matter what I pay with. I am there to buy something, that should be good enough. Gathering data on me it just not needed and I feel no obligation to further their marketing efforts.
@hedonia: For the most part they can't track individual items in a purchase. I worked for a top 5 US credit card issuer and all we saw from our Visa & Mastercard customers was the store name and total amount. No SKU level data. Even trying to figure out the store was a challenge since we had no relationship with the store(the merchant bank did) and the naming conventions were very inconstent. That being said, some stores were a single or limited line of prodcuts (e.g., bookstores, gas stations, bars, etc.) and would provide some indication of the purchase type. On the other hand, a purchase at Walmart would not be able to provide any level of detail of what kind of purchase was made.
I don't know how Canadian Tire would get access to SKU level information, unless the purchase was made in Canadian Tire store. Since Canadian Tire sells much more than tires, I would guess that all SKU level data comes from CT stores, and purchases at place like Sharx Pool Bar would only show the total purchase (not what drinks you bought ;^).
@ds: If you use a store brand card in that store, they have the ability to link all of your individual purchase to you. This has been possible for a long time.
Nothing to do with your ability to pay the bill, all about proving you're actually you.
@Eyebrows McGee (popping ~May 29): Isn't that sort of a violation of HIPPA?
A vendor could extrapolate that information from your purchases but unless you bought items from a store that only sold baby gear that would mean that a retailer is selling your purchasing data. If this information came out of the medical community someone needs to be investigated.
@bohemian: All I know is pretty immediately after finding out I was pregnant, we started getting tons and tons of stuff in the mail -- diaper coupons, formula samples, magazines, information packets from this that and the other ... it's out of control.
And there's a LOT of it that's sent to my husband, too, who has a different last name than I do. So I have no idea where they got it.
I call shenanigans. The credit card companies cannot see what items you purchase. When you make a purchase with your card, the only information sent to the credit card company is the name of the store and the total price of your purchase. There is absolutely no way that the credit card companies could find out what items you purchased without calling up the the store (or you) and asking them to pull out the receipt. Not even this could be automated, as the credit card company doesn't even have information about the "store transaction number". The owner of the store would have to manually flip through receipts from the approximate time and date looking for transactions in the correct amount. (According to PCI regulation, the store is not allowed to automatically copy down the name on the card either.)
What do I have to buy in order to get one of those, "Hey, go cash this check for $5,000 and we'll charge you a 5% convenience fee plus 32.99% APR."
@Tiber: I don't think they actually do that in most cases. The guy who collected that data was doing it for in-store purchases with a store-issued card.
@Chris Walters: Whenever you feel like you want to buy something, buy the opposite.
Was gonna buy an iPod, decided on buying a cotton candy machine.
On second thought...
@NeverLetMeDown: Maybe I am a really terrible person, but I don't think I know any of my siblings' birthdates.
In my defense, I don't think they'd know mine, either. We're just not big anniversary remembering people.
I would think the company knows what kind of person I am by the big extended middle finger picture I asked them to put on the face of the card. They also rejected the snapshot of my balls with "lick me" written on them via Sharpie.
If my purchases consisted only of psychotropic drugs and firearms, do you think American Express will increase my limit?
@TEW:
Probably that you're going to die in an auto accident unless the clogged arteries get you first.
@ohiomensch: Questions like that are used to verify your ID . If you are giving an answer they know you are lying if you don't have a sister . Or they may use that a code or password in the future.
From a profiling standpoint they now know do you give out personal information and/or how easily you give up that information not that it necessarily means much .
Half the time they ask you these questions they are in effect trick questions with a different purpose in mind . Police and lawyers do it . Doctors & insurance companies do it . They get as much information as possible to derive new information or cover their butts if something goes wrong in the future .
And that's why daily life is becoming a job interview .
But we can't know about their lives......enjoy
kinda want to read my profile, not gonna lie.
also, i find this fascinating. v v big brother, but also fascinating. patterns!