11-27-2008 04:25 AM
Amex is bi-polar.
11-27-2008 06:38 AM - edited 11-27-2008 06:42 AM
I don't understand how this response relates to the OP's statement.
There have been electronic records of our financial life as long as credit cards have been generally available. Longer actually. Nothing new there.
I think the new thing is that the credit card companies now realise that they extend credit that sometimes sums up to multiples of annual salaries without even checking whether the annual salary on record has any basis in reality (see that link to the NY Times article somewhere on page 1).
So, you apply for an Amex card, you give them a (perhaps bogus) number for your yearly income, they check what credit other companies gave you and then decide how much additional credit they will give you. After this is done, you decide to get a few more credit cards, and they now think that you have too much total credit for your salary. So they either decrease your credit line with them, or check your income and your expenses, or both.
That's something new. It's not only about your history of paying back credit, like up to now. It's about your ability of paying back credit. Which might change from one day to the other, anyway.
That says it better than I originally did. The entire financial industry for consumer credit (house, car, credit) had gotten into the (bad) habit of looking at past performance to convince themselves that as long as the client paid off past debts he would be good for future debt. The flaw is no one can predit the future and if the customer was extended way more credit than he should be he would be responsible in using it. That turned out to be wrong as we now see. People used cheap credit from homes and cards to fund their lifestyle. Some were responsible, many were not.
Yes, a lot of the credit data has been available for some years in electronic form, but only in the last ten years or so have the companies gotten into the data mining and sifting and sorting business of the data to try to predict the good from the bad. A lot of their modelling turned out to be unsound and too optimistic.
Personally, I think this credit rollback is good. Yep, a lot of people are going to be left with small overall credit lines, more in line with their means. But it will make for a sounder system going forward. Extending unsecured credit in excess of one's annual salary is not sustainable as we are now seeing.