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Tracy Becker
President
North Shore Advisory, Inc.
155 White Plains Rd. Suite 200
Tarrytown, NY 10591
Co-Author
"The Credit Solutions Kit"
Phone 914-524-8300
Fax 914-524-5014
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American
Express Controversy!
What
has really been going on?
Lately when I speak at meetings with the general
public or Mortgage Professionals when I mention Amex eyes widen and heads
begin to nod. So many people over the last year and especially last few
months have had varying negative experiences that left them shocked and
confused. I have written a bit about this topic in the past but the need
for deeper understanding seems to be great.
In September of 2008 it came to light that many Amex
Card Holders were experiencing limit reductions due to "Behavioral
Scoring". "Behavioral Scoring" is when your creditor
analyzes the stores you have been shopping at, purchases you have made, and
the Lenders who hold your mortgage. If they see that other consumers with
similar creditors and lenders have payment patterns that are negative or
ended in default Amex would assume the same could happen to you. You would
be labeled a risk and a reduction to your limit occurs. A letter was sent
to one cardholder explaining the reasons why Amex made the decision to cut
his limit. Below is what was described:
. "Our credit experience with customers who have
made purchases at establishments where you have recently used your card."
. "Our analysis of the credit risk associated
with customers who have residential loans from the creditor(s) indicated in
your credit report."
American Express was asked to explain these
decisions. Kim Forde, a spokeswoman at Amex, confirmed that the company was
studying its exposure to risk more specifically reviewing its cardholders'
credit profiles, including issues it has always considered - from past
payment history to credit reports and income. She also said "We are
looking at some other factors, too, in light of the economy. We are looking
at consumers holding subprime mortgages (and) those living in areas where
there has been a greater deterioration in home prices." Amex made it
clear that these are some of many reasons that limits are reduced.
In the last 8 months the practice of closing accounts
and reducing limits has escalated to the norm and Amex is the leader of the
pack. We started seeing wealthy clients with large Amex limits, who carried
high balances, getting their limits cut when paying off or down their open
debt. These consumers had never had any late payments in their credit
history. This started to become a pattern and we were advising consumers in
this situation not to pay the balance down unless they were willing to lose
the use of this credit. Amex, who now has been using a different tactic to
evaluate risk levels is waiting for the right moment (when balances are
low) to swoop in and cut your limits.
In the past month we have noticed consumers with
small limits getting their balances cut as soon as payment is made. The
credit card companies have taken major losses on bad debt in 2008 and many
currently.
Amex, although in the industry they are considered to
have low amounts of charge offs, is trying to change some of the bad underwriting
decisions that got them into short term losses. Therefore Amex and many
creditors are looking at all of us through microscopic lenses for a sign of
future losses. They would rather cut more and loose less no matter the
expense to the general public.
If your ratio of balance to limit is high on most
credit cards, even though you have never been late, and have a mortgage
with a subprime lender, have been shopping at discount stores you may find
your limit cut as well. These are tough times and the creditors are
panicking. With all this info try to look at your credit the way your
creditors do and follow a pattern you think fits in to what they would feel
secure with. When this passes you can use your credit with less concern
about being judged but for now, if you want to keep it, take control and be
aggressive about protecting it.
Copyright ©2009 North Shore Advisory Inc.
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