Credit Card Blog

If you thought credit scores were only used to help lenders decide whether or not they should extend credit – think again! Sure, you may know that there are employers who run a credit check before they hire; and that your car insurance premium is partly based on your credit score… but did you think your internet browsing would be affected by your FICO?

Google has started to experiment with their Google ads by showing more expensive products and services to individuals with higher FICO scores. Google has always been known for their pay per click advertising and the ability for advertisers to target specific markets – but is this taking it a step too far?

Right now, there is a database of about 2 million people through “Compete”, who agreed to share their credit score when applying for a new credit card. These people are then targeted with specific Google ads when they use their computer, based on what their credit scores are. This allows advertisers to reach consumers who qualify for their products – for example, advertisers trying to sell mortgages to people with FICO scores over 700 would only show their ads to this group of internet users. Primarily, this data will be used to target users seeking credit cards, but any company interested in displaying ads to a group of people with a specific credit score would be able to do so.

It wasn’t long after credit cards were first introduced in America that the companies realized it wasn’t the people who paid their balances in full each month that would make them the money – it was the people who carried a balance from month to month that would help them become the multi-billion dollar industry they are today.

The trouble with giving credit to the riskier customers of course, was that they had to figure out how to decide which cardholders would pay something each month, and not just run up a huge bill and skip out completely.

Two solutions were created – the first was to create a number of different credit cards, each with different credit limits, terms, and interest rates and give them out to people based on their credit score and credit worthiness. The second solution was a strategy to learn how different types of customers pay their bills. Companies started analyzing how people behave based on what kind of purchases they made on credit cards – and you might be surprised just how detailed their investigations and research have gone.

In 2002, an executive at Canadian Tire had breakthroughs in credit cardholder research when he analyzed the information from every customer who paid with credit card at Canadian Tire stores. The stores sold electronics, kitchen supplies, automotive goods and sporting equipment. Martin could see what cardholders were purchasing. He was able to pinpoint which brands people bought who would continue to pay their bills on time versus the brands people bought that would result in late payments or no payments at all.

People who used their credit card at a bar would typically miss credit card payments, while 47% of people who used their cards at a specific bar could be expected to miss 4 payments in a 12 month period!

Math geniuses who did nothing but study the trends and statistics of credit card use versus how the cardholder makes their payments were hired by all the major credit card companies to analyze risk for lending.

People having babies or getting married were shown to be more responsible with their credit cards and suddenly credit card companies were marketing to people getting married or having babies. Signs of depression or desperation (like seeing marriage counselors or going to pawnshops) would result in credit card companies reducing credit lines since they were more risky.

“If you show us what you buy, we can tell you who you are, maybe even better than you know yourself,” said Martin, who now works for Wal-Mart Canada. “But everyone was scared that people will resent companies for knowing too much.”

Data driven psychologists are not only employed by credit card companies to determine a cardholders level of risk, but also to handle their credit card collection calls. They know how to talk to people and what to say to get money out of them based on the things they’ve bought and the things they say during the phone calls.

Learn more about credit card company psychology: NY Times article

It’s been a well known “secret” that credit card companies analyze cardholder spending and how they make their payments as a method of determining risk. They’ve learned that people who buy certain brands are more likely to pay their bills late or not at all; and what sorts of products paid for with credit will pretty much predict the cardholder will always pay their bills on time.

As an extension of this analysis, it’s possible that certain spending will start to affect your credit score. People who use their credit cards with the following industries may be among the first cardholders to experience credit score adjustments due to their spending habits:

• Gambling (casinos and racetracks)

• Pawnshops

• Liquor stores

• Marriage counseling

• Massages

• Spas

• Bail bonds

• Hospitals & Doctors offices

• Court fees

• Escort Services

• Thrift stores or secondhand stores

Based on research of cardholders making purchases with these industries and the probability of these cardholders paying their bills late or not at all – these are a few of the first industries that are considered suspect when a lender is deciding whether or not to extend you credit.

In 2010, the credit card legislation changes will provide regulations for just how far a credit card company can go to learn about you and your purchases. If you want to be sure your credit score isn’t being adjusted based on where you shop – be aware of where you are using your credit cards.

If you read the terms and conditions for your credit cards, you’d probably read that your credit cards’ billing cycle is “between 20 and 25 days”, or something similar.  In other words – the cycle varies, give or take a few days.  You might be thinking, so what?  Here’s the issue with billing cycles that are not set in stone:

Many people like to use their bank bill pay feature.  Many banks offer this feature for free and it’s extremely convenient.  You simply set up your accounts with your bank account, decide which day of each month you’re going to pay the bills and schedule with a few clicks of your mouse.

At first – everything will work out perfectly.  But then the varied billing cycle days will rear it’s ugly head.

At some point, your due date will change.  Depending on how close to your actual statement due date you schedule your monthly payments, eventually – that due date could change enough to cause your scheduled payments to get paid AFTER the due date.  Since your payments are all scheduled in advance (set it and forget it), you probably aren’t watching your statement closely to make sure each payment will be applied on time.

If you’re using an automatic bill payment for credit cards with a billing cycle that is variable – make sure to set your payments so they’re being paid a good ten days or more BEFORE the due date.  It should give you enough of a buffer that even as the billing cycles fluctuate, your due date won’t come before your scheduled payment.

MasterCard’s Easy Savings Program helps cardholders save money at various merchants and retailers when they shop using their MasterCard credit card. Previously, the Easy Savings Program added the United States Postal Service to the list of merchants, giving program members an automatic 5% savings when using the US Postal Service website for Click N’ Ship supplies, including shipping labels and postage.

Now, Dunkin’ Donut lovers can take advantage of a 5% discount on any purchases made at Dunkin’ Donuts for members of MasterCard’s Easy Savings Program. Obviously, cardholders are benefiting from savings at their favorite retailers, but it’s important to note that merchants who participate in MasterCard’s Easy Savings Program are also benefiting. The rebates and discounts cardholders receive encourage people to shop there, including people who maybe wouldn’t have shopped at that retailer without the discount as they want to gain the most benefit from the Easy Savings Program membership.

MasterCard estimates that members of the Easy Savings Program spent 60% more with merchants who are part of the program.

As the popular iPhone commercials say, “There’s an App for That.”

MasterCard offers a new application used on both iPhone and iPod, which helps cardholders find an ATM anywhere around the world.  The application is available at the Apple App Store, and is called The MasterCard ATM Hunter.

Not only does the technology allow cardholders to locate ATMs regardless of their physical location, but the application helps them with more advanced details, as well.  Due to the estimated 2 million people per year who contact MasterCard customer service by phone and email for information about ATM locations, the company felt creating the application would be beneficial.

Along with geographic location information, cardholders can now get information about where handicapped accessible ATMs are located, the bank charges at the ATMs nearby, where deposits can be made, which locations feature a drive thru ATM and the hours of operation for all locations on the list.  Having access to this information via their iPhone or iPod will reduce the number of customer service calls for the information.

American travelers in Europe and other countries which have adopted the use of “chip-and-PIN” smart cards might find it hard to make a purchase. It seems that the smart cards can be used to buy everything from gas to train rides sold from vending machines. But if you try to pay for these purchases with an old-fashioned swipe-only credit card, you might have to endure long waits – or worse.

Jason Cochran, a blogger for Wallet Pop, recently lamented his own European experience with an American credit card. Said Cochran: “There was never a transaction in which I didn’t have to announce to the clerk that my credit card was American and so it couldn’t be dipped into the chip-reading hand-held unit on the counter; it had to be swiped at their register keyboard. “

Why hasn’t America moved to a smart card standard? Europe, Brazil, Turkey, and many other nations have done so. Canada is preparing to put such a system in place. But here in America, we still have to swipe when we pay. Plus, the smart cards have reduced credit card fraud in the nations where they are commonly used.

The American Express Blue card has a chip-and-PIN system, but so few merchants have the necessary card reader that even this smart card is usually swiped for purchases. Unfortunately, until we can agree on a standardized system, the USA’s outdated swipe transactions will continue.

It’s easy to forget among all the negative reports of the credit card industry these days that they do sometimes give a little something back to cardholders. If you use the cards responsibly, which means you don’t spend more than you can afford to pay back and avoid carrying balances from month to month, your credit card gives you benefits that you probably didn’t even realize.

Check into your credit card agreement and features to see if your card comes with any of the following – and if so, don’t forget to take advantage of these benefits!

Car Insurance for Rentals: many credit cards give you complimentary rental insurance coverage when you rent a vehicle with your credit card. You don’t need to pay extra to the car rental insurance company for coverage when your card has this benefit.

Extra Receipt: have you ever needed to return an item only to find that you have no idea where the receipt went? If you paid with a credit card, your credit card statement serves as a proof of purchase and should work as a receipt in the store in order to exchange or get a refund for an item.

Extended Warranties: sometimes credit cards give you an extra 90 days to a year warranty on items you buy using the credit card. This is warranty coverage that begins after the standard store or manufacturer warranty runs out.

Recently, an app was developed for the iPhone that allows business owners to accept credit card payments with their iPhones – called iSwipe.  This is ideal for businesses that travel to trade shows and expo events as it allows them to accept credit card payments from their customers even when out of the office.

iSwipe is also useful for people who run party-plan businesses (Tastefully Simple, Tupperware, Creative Memories, etc) because when you are out giving parties in your customer’s homes, you can easily accept and verify credit card payments before you get home.   Rather than having your customers write their card information down on an order form, you process their payment immediately (avoiding potential problems with illegible writing or nonsufficient funds), and save yourself the extra step when entering customer orders at a later date.

The iPhone app works with the three most commonly used payment gateways for small business owners, including Paypal, Authorize.net and Cybersource.

Using a credit card online presents a few risks that paying with cash in person doesn’t have.  It’s important to realize that while using your credit card online does have a few risks – it’s not much different from the risks you face when handing your card to a cashier in any retail establishment.

Here are a few tips for using your credit card online, to help keep your personal information safe:

• Make sure the website URL starts with “https”.  The “S” shows that the website you are buying from is using a secure server.
• Use a Visa card and sign up for Verified By Visa.  When shopping online, Visa cardholders can require that they enter a password whenever they use their credit card on the internet.  Even if someone got a hold of their card or the numbers -they wouldn’t be able to make an online purchase without also knowing the password.
• Use a Mastercard and sign up for SecureCode.  Just like Visa’s program, whenever you use your Mastercard online, you will be required to enter an additional password when processing your card for payment.