Credit card issuers are utilizing alternative strategies for weeding out potentially undesirable cardholders. To reduce the risk of losing more money from credit card payment defaulters, many lenders are not only reviewing ones FICO credit score, but are using a system called behavior-based risk assessments to either accept or reject credit card applications.
Now every time you apply for a new line of credit you’re past spending habits and patterns are going to be reviewed and compared to those of loan defaulters. If there are too many similarities between your shopping behavior and the negative models the chances of approval are greatly diminished.
Risk assessment is one of the first steps in risk management. Behavior-based risk assessment helps figure out the value of a behavior in relationship to being a recognized threat. Risk management in business is to help prevent loss by managing or limiting threats to the organization or the financial bottom line. Ed Mierzwinski a consumer advocate and the consumer program director for the U.S. Public Interest Research Group has noted the increased use of this archaic type of consumer profiling in the credit card industry.
Although card issuers are not releasing the specific details about what type of shopping behaviors they deem risky, consumers worried about the impact this system will have on them should take control of their resources. Mierzwinski suggests playing it safe by working towards reducing debt, shopping less and making timely payments.