Behavior Monitoring…Can It Impact Your Credit Score?

The announcements of the lawsuits against Countrywide, the nations largest lender overshadowed another important legal action pending against credit card issuer CompuCredit by the Federal Trade Commission in Atlanta earlier in the month of June.

According to the latest Business Week article by Jessica Silver-Greenberg..‘Your Lifestyle May Hurt Your Credit.‘  As Greenberg notes, most borrowers understand that timely payments on their balances are important to maintaining access to credit.  But many are unaware that this is NOT the only criteria which may be reviewed to assess their credit worthiness.

Sometimes truth is stranger than fiction! What if the following happened to you?  Let’s say, you’ve been having relationship troubles. Your marriage is coming apart at the seams and in an effort to stave off a divorce, you consult with a marriage counselor for several months; paying your bill by credit card. What if the stress of the process causes you to drown your sorrows with a few extra drinks at the local bar after work?  You may ask…who cares?

Or here’s another scenario. What if instead of getting new tires for your car, you decide to retread them instead; once again paying the mechanic with your credit card.  Well, you might be surprised to discover that your banker cares. You see, every single electronic transaction is creating a financial record.  What many of us fail to take into account, is that every single electronic notation also in a sense, tells a story.  One which may be subject to interpretation.

For instance, the marriage counsel may NOT be viewed as a positive step by the remote cold calculations of the statistical analysis of a computer aided program.  In fact, you might be surprised to be pegged as a potential ‘problem borrower’ due to statistical analysis which indicates that you are at a higher risk for financial crisis due to the increased probability of a divorce.  The extra drinks…well in combination with marital therapy may indicate the potential for instability. Interesting….

While most of us are familiar with the credit scoring model, FICO, this is not the only method used to make decisions which affect a bank’s lending decision.  In a recent conversation with Ron Bullis, an experienced lender with Platinum One Financial in the Grand Rapids area we discussed the fact that banks have always had at their disposal a number of ways of determining your financial viability.  However, by law they have to disclose this to you.

This is the contention that lies at the heart of the Federal Trade Commissions’ lawsuit against CompuCredit.  It’s NOT that issues like retreading a tire or visiting a marriage counselor should not be criteria used to make determinations regarding your credit worthiness.  Your bank has the right to make that decision in any way they choose.  BUT, they must disclose.

So…is your behavior up to par?  As consumers, we will all need to be aware of the fact that it’s not just our credit payment history anymore.  With increasingly sophisticated systems, your lifestyle patterns may be scrutinized in a manner which you never imagined.

Copyright 2008  Audu Real Estate  All Rights Reserved

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