Could Your Lifestyle Affect Your Credit Rating?

We all know that things like payment history and outstanding balances can end up hurting you in regards to interest rates and credit limits. What about your lifestyle? Well according to one lawsuit filed by the Federal Trade Commission in Atlanta, your lifestyle can have a big impact on your credit rating.

The Federal Trade Commission has filed suit against CompuCredit for not disclosing to the consumer who uses the sub-prime credit card, the Aspire Visa, that both payment history AND purchasing behavior are important. The FTC also goes into a full investigation that reveals all of the smoke and mirror marketing this company has practiced through the years and how it has misled the public.

According to the suit, “the company touted that cardholders could use their credit cards anywhere – what they didn’t say was that you could be punished for specific kinds of purchases.” Most of the behavior that was used to evaluate credit scoring was determined by morality based decisions and purchases. So you can imagine what comprises most of that list. However, the list also included types of business that you might not expect such as:

• Direct marketing merchants
• Marriage counselors
• Personal counselors
• Automobile tire retreading and repair shops
• Pawn shops

Now, most credit card companies will perform a risk assessment by taking a look at your overall credit history with all lenders. Based on that information, they can reduce your credit limit and increase your interest rates. If you are late or behind with other cards, then the credit card company where you are current considers you a risk and raises interest rates accordingly. This practice of changing the terms of your account is referred to as the universal default clause.

In addition to the normal practices of utilizing the universal default clause, CompuCredit was also looking at where the charges were created to see if the buying patterns of the individual were creating additional risk. If so, they would reduce the subscriber’s credit limits to levels below their existing balances and then charge over-limit fees.

This particular credit card (the Aspire Visa) is a sub-prime credit card. These are important for consumers that have low credit ratings and need to improve their credit score.

Sub-prime cards are important in the fact that they do help people build credit. However, you also need to be careful because there are a lot of companies waiting to take advantage of consumers who are in dire situations with their credit.

If you are using a sub-prime card or thinking about using one, make sure you do extensive research on that card and the corresponding company. It could end up saving you a lot of trouble down the road.

This is the great thing about the internet - if there is any negative news about a company, you can almost always find it on the internet.

This lawsuit does raise an important question. Are other credit card companies doing the same thing? Is CompuCredit just one of many credit card companies evaluating their cardholders on the basis of behavior?

For a lot of people, this wouldn’t be an issue because they don’t put themselves in situations that would put their character at risk. However, what about the person who is in counseling? What about the couple that is trying to save their marriage? Should that be used against them? This is another example of a credit industry out of control.

Copyright © 2008 Prudent Money and Bob Brooks. All rights reserved.