Thursday, April 8, 2010

Your Credit Card Company Spies On You

According to this article in the New York Times, credit card companies have recently been implementing new strategies for reducing their risk -- strategies based on monitoring and analyzing your behavior in depth.

They now have algorithms that use data on what you buy and how you pay it off -- even how often you check your balances on the web -- to determine if you could be having marital difficulties, if you may be at risk of losing your job, if you are having emotional or psychological problems, or if you are simply the kind of person who eventually defaults on obligations.

They even analyze the kinds of products you buy to determine if you are a morally and socially responsible person.

For example, if you buy carbon monoxide monitors, birdseed, those little felt pads for the bottom of your chairs, and Mobil 1 motor oil, that correlates well with paying bills on time. If you use your card on drinks at biker bars, guns, sleazy magazines, generic cheap motor oil, and "Mega Thruster Exhaust Systems", you are much more likely to miss payments eventually.

If you purchase marriage counseling services, this raises a red flag that soon you may be talking to your credit card company about how the debt on your card is not really yours, but your ex-spouse's -- and you have no intent to pay it.

And any activity at a pawn shop is damning.

Conversely, activity that shows an upcoming wedding or birth of a child will usually indicate responsible behavior.

The algorithms take all of this data and build a complete psychological profile of you, updated monthly, which is then used to extrapolate risk. As more negatives are recorded, companies will begin to reduce your credit line and increase minimum payments to squeeze out as much cash as possible before you default.

“It’s really hard to get clean insights of a cardholder’s state of mind,” said Andy Jennings, the head of research and development at FICO, one of the biggest and oldest analytic firms. “The more subtle the insight, the more cleverness finding it requires. If someone pays for a big cable television package each month with their card, are they rich? Or does it signal they don’t have the sense to avoid products they can’t afford? If they check their balance three times a day, are they worried or uptight? We may look at 300 different characteristics just to predict their delinquency risk.”

“The person who buys a skull for their car, they are like people who go to a bar named Sharx,” Martin told me. “Would you give them a loan?”

Another thought also occurs to me:  When the government is responsible for our health care, will they want to look at all this data to determine our medical risks also?  With Obama, we are all responsible for each other now, and friends don't let friends eat unhealthy food, or play with dangerous toys.

Or as I saw in another article recently, "Society works more efficiently when there is no privacy."

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