The Credit Card Industry's Best Kept Secret

We’ve been taught, for decades, that the best way to manage your credit is to make sure you are never late with your payments. More recently and over the past 20 years - the approximate age of credit scoring - we learned that we also had to adhere to some other, not so intuitive, practices. These included keeping credit card balances low in proportion to our credit limits and curtailing our desire to load up on new credit over the holidays. Full compliance would ensure friendly treatment from our credit card issuers, right?

Earlier this week, we touched on an existing but largely unknown practice called “merchant pattern risk assessment.” In English this means to profile your credit card usage, by merchant or store, to determine if your shopping patterns indicate that you are a risky credit card user. This information can be used to change your credit card terms including lowering your credit limit, closing your card, or increasing your interest rate.

So what exactly is “merchant pattern risk assessment?” It’s a fairly complicated analytic process where defaulted, or otherwise underperforming, cardholders are profiled to determine if they have similar shopping patterns that were symptomatic of their poor behavior. For example, if 50% of defaulted credit card customers used their credit card at a massage parlor within 90 days of defaulting then you don’t need to be a Georgia Tech statistician to recognize the correlation.

This certainly doesn’t mean you should stop using your credit card and doesn’t mean you shouldn’t use them at the above merchants. But, at the very least, you should be aware of this practice. The folks who are going to be the most at-risk are people who already have poor credit. These folks are on the short leash and anything more they do that indicates, “I’m risky”, will set off bells and whistles.

John Ulzheimer is a nationally recognized credit expert, president of Consumer Education for and contributor to On The Money. Learn more about him at