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Most borrowers know a late payment or high outstanding balance can hurt their credit. But what about frequenting a massage parlor, retreading a tire, or visiting a marriage counselor? Such activities count, too, according to a suit filed by the Federal Trade Commission in federal court in Atlanta on June 10 against card issuer CompuCredit (CCRT).
Lenders, insurers, and other financial firms use credit scoring systems to make a host of decisions about consumers, including the interest rate on their mortgages, the limits on their credit cards, and the monthly premiums for their auto coverage. Some rely heavily on FICO, a three-digit score developed by Minneapolis-based financial firm Fair Isaac, while others use proprietary models developed by statisticians. But companies don't disclose what's baked in to their formulas, leaving many borrowers to wonder which factors determine their financial fate. The FTC suit against Atlanta-based CompuCredit for allegedly "deceptive" marketing practices offers a rare look inside the opaque business of credit scoring. It reveals a mechanism that consumer advocates and politicians have long suspected exists—one in which purchasing behavior, not just payment history, matters.
The allegations, in part, focus on CompuCredit's Aspire Visa, a subprime credit card for risky borrowers. The FTC claims that CompuCredit didn't properly disclose that it monitored spending and cut credit lines if consumers used their cards at certain places. Among them: tire and retreading shops, massage parlors, bars, billiard halls, and marriage counseling offices. "The company touted that cardholders could use their credit cards anywhere," says J. Reilly Dolan, assistant director for financial practices at the FTC. "What they didn't say was that you could be punished for specific kinds of purchases." The Federal Deposit Insurance Corp. is also seeking $200 million in penalties from CompuCredit in the matter...
Your Lifestyle May Hurt Your Credit
Lenders, insurers, and other financial firms use credit scoring systems to make a host of decisions about consumers, including the interest rate on their mortgages, the limits on their credit cards, and the monthly premiums for their auto coverage. Some rely heavily on FICO, a three-digit score developed by Minneapolis-based financial firm Fair Isaac, while others use proprietary models developed by statisticians. But companies don't disclose what's baked in to their formulas, leaving many borrowers to wonder which factors determine their financial fate. The FTC suit against Atlanta-based CompuCredit for allegedly "deceptive" marketing practices offers a rare look inside the opaque business of credit scoring. It reveals a mechanism that consumer advocates and politicians have long suspected exists—one in which purchasing behavior, not just payment history, matters.
The allegations, in part, focus on CompuCredit's Aspire Visa, a subprime credit card for risky borrowers. The FTC claims that CompuCredit didn't properly disclose that it monitored spending and cut credit lines if consumers used their cards at certain places. Among them: tire and retreading shops, massage parlors, bars, billiard halls, and marriage counseling offices. "The company touted that cardholders could use their credit cards anywhere," says J. Reilly Dolan, assistant director for financial practices at the FTC. "What they didn't say was that you could be punished for specific kinds of purchases." The Federal Deposit Insurance Corp. is also seeking $200 million in penalties from CompuCredit in the matter...
Your Lifestyle May Hurt Your Credit
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