If any telephone company attempted to sell your underlying call transaction records to a financial institution for the purposes of analyzing your character, what do you think would be the outcome?

Press release...

Experian  and Visa align to help financial institutions improve account management decisions

"Experian and Visa today announced an alliance to create unique risk management products for financial institutions. The alliance intends to deliver a series of jointly developed risk management products designed to help financial institutions reduce credit and fraud risk losses."

"The first product developed collaboratively by Experian and Visa, BankruptcyPredict, has the potential to reduce financial institution losses by better identifying consumers in financial distress and predicting bankruptcies up to 24 months in advance. By using both transaction data from Visa and credit file information from Experian, the product uses patented technology to deliver financial institutions credit risk scores. A financial institution would consider the score and other risk information when making account management decisions such as when to offer financial education or other actions that may help cardholders recover from financial distress."

"BankruptcyPredict differs from other products on the market because it uses consumer credit and transaction activity across multiple financial account types. By taking a more comprehensive view of a consumer’s credit activity - including many forms of payment cards and other loans or credit products (e.g., mortgages, lines of credit), financial institutions can make more accurate account management decisions."

"BankruptcyPredict will be a subscription service commercially available from both Experian and Visa in early 2008."

Are you ready for a psychological profile based on your credit report?

Consider a person who charges an excessive amount at liquor stores. He could very well be an alcoholic. He could also be throwing a large party for a charity. Or he simply could be making authorized company purchases for which he is reimbursed.

Now consider the person who charges groceries on their credit cards. In past years, this was somewhat a negative sign that you were living on credit and possibly exceeding your means. Now that I am using a credit card that pays a bonus, I use it for everything including my utility bills. Which becomes a two-edged sword. The underlying card transaction give a more complete and accurate account of my life while I am being rewarded for using the credit card.

But since we are not privy to the information collection process, the mathematical formula (algorithm) that is used to create a credit score, we are not able to verify that our transactional data is not being misused for purposes that would  work against us.

Considering the error rate in credit reporting activities and the "lag" in reporting accurate information, this type of program may distort or otherwise magnify your creditworthiness.

With some no-limit credit cards, your remaining credit balance may be improperly calculated. Normally calculated by subtracting your current balance from your credit limit, some credit repositories were known to simply use your highest balance as your credit limit -- thus making you seem less creditworthy even though you had a "no- limit" card.

Credit card repositories can not easily separate your reimbursable employee expenses from your personal expenses which may highlight a situation where you appear to be spending more than your income on credit card purchases. Again, a misleading impression can be given to someone who is not able to discern the differences between the two legitimate accounts. If this information is used by a credit grantor or insurer, you may never be able to find out why your rates are higher than those of your similarly-situated neighbor.

While you have no control over the balance information that your credit card company may share with a credit repository such as Experian, Equifax and TransUnion. However, under the Gramm-Leach-Bliley Act (GLBA), you may be able to "opt out" of any program which may attempt to share the underlying data with their affiliates.

(Subtitle A: Disclosure of Nonpublic Personal Information, codified at 15 U.S.C. § 6801 through 15 U.S.C. § 6809)

The Financial Privacy Rule requires financial institutions to provide each consumer with a privacy notice at the time the consumer relationship is established and annually thereafter. The privacy notice must explain the information collected about the consumer, where that information is shared, how that information is used, and how that information is protected. The notice must also identify the consumer’s right to opt-out of the information being shared with unaffiliated parties per the Fair Credit Reporting Act. Should the privacy policy change at any point in time, the consumer must be notified again for acceptance. Each time the privacy notice is reestablished, the consumer has the right to opt-out again. The unaffiliated parties receiving the nonpublic information are held to the acceptance terms of the consumer under the original relationship agreement. In summary, the financial privacy rule provides for a privacy policy agreement between the company and the consumer pertaining to the protection of the consumer’s personal nonpublic information.

More than loan rates...

The problem with credit bureau data is that it is now being used to determine much more than loan rates. Some insurers use credit bureau information to set policy rates.

According to Christopher Cruise at Bankrate.com, "Your credit score can have a profound effect on the amount you have to pay not only for auto insurance, but for homeowners insurance also -- and perhaps on health and life insurance in the not-too-distant future."

There is no way to verify what information is being reported and no government agency monitors scoring algorithms...

And the last thing you may want is your medical insurance carrier canceling your policy or raising your rates "because of your "liquor" or other purchases -- a real possibility based on the "unpublished nature" of the underlying data algorithms used to calculate credit scores.

Of course, both the credit card company and the credit reporting agency may be able to skirt any laws by using "aggregate" category amounts in their calculations. Since many credit card merchants have non-descriptive names and sell a variety of merchandise, the information profile developed may be inaccurate and unwarranted.

What can YOU do?

Write your credit card issuers and tell them that you demand that only the monthly balance be reported to any credit repository. Make your displeasure known about their attempt to leverage the information they hold by forming a joint venture with a credit reporting agency.

Freeze your credit report so that the revenues from selling your information are severely limited. "Opt out" of all information-sharing programs. Challenge any and all errors in your credit report. Make sure that you order your government-mandated "free report" from each of the three largest credit repositories each and every year. Do not use their convenient website, use a written letter request to increase their transactional costs.

Demand that your elected representatives enact an "opt-in" provision for financial institutions or merchants providing information to affiliated  entities. This would put the onus on the financial agency to obtain your approval before they shared information with any of their affiliates.

Demand that your elected officials enact a revision to existing financial reporting laws mandating that your credit information may ONLY be used for credit extension purposes and for nothing else.

Demand that your elected officials enact a revision to existing legislation that provides ONLY for reporting a single monthly balance to any credit repository. Underlying transactional data would be secure.

Financially impact VISA's operations by spreading purchases across a number of cards. Whenever and wherever possible use debit cards or cash. Pay off your balances monthly if possible to cut down on the amount of interest income that the credit card issuers earn.

Demand written "adverse notice" detailing the reasons for any credit or insurance "turndown." Do not hesitate to file complaints with the Federal Trade Commission or other government agencies.

There should be a "bright-line" limit to the amount of information that is shared between financial institutions and commercial entities.

Reference Links:

Your Money: Bad credit can inflate car insurance premiums|USA Today

Consumes Union Urges Lawmakers to Ban Use of Credit Histories in Setting Homeowners Insurance Rates