Credit scoring based on what you buy?

Many consumers are aware that their credit history can have a big impact on their lives, and the effects reach beyond the home mortgage, the auto loan, and the credit card. Credit scores have long been used by insurance companies in determining the premiums you pay. Hospitals are starting to look at credit histories before providing some types of care.

And now the credit scoring mystery gets a little stranger. The FTC is suing CompuCredit, company that provides credit cards to people with poor credit. The FTC is alleging that the company uses unfair practices in its proprietary system of credit scoring for its customers.

For CompuCredit, it doesn't just matter how long you've had an account, whether you've made your payments on time, or whether you've exceeded your credit limit. They also include factors in their scoring system based on what you're buying with your credit card. And they're cutting off customers who use their credit cards at massage parlors, bars, billiard halls, and marriage counselors.

This is getting ridiculous, and it's yet another reason why consumers should participate in the whole credit card game as little as possible. Quite simply, credit card companies own you. And they can do with your credit what they wish, with seemingly few exceptions. The fact that the FTC is potentially going to crack down on ridiculous standards like this is a good sign, though.

Of course if we use our credit cards, we have to play by the rules of the credit card companies. But I don't think they should be able to tell us where we can and cannot use the cards, so long as we are not engaging in illegal activity with their credit cards. Where will credit card companies go next? Cutting off people who use their cards for certain political or religious donations? Prohibiting the use of credit cards with certain merchants who are on a special list created by a credit card company? The line has to be drawn somewhere.

Tracy L. Coenen, CPA, MBA, CFE performs fraud examinations and financial investigations for her company Sequence Inc. Forensic Accounting, and is the author of Essentials of Corporate Fraud.
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