christmas

So, say you’ve had a good relationship with a credit card company and been paying off substantially more than minimum payment over recent months. You’ve also completely paid off other credit cards in recent months. You then get a notice from the credit card company saying they’re reducing your credit limit, right before Christmas. Would you be more than a little miffed?

Well, I certainly was. The behavior of a certain large company surprised me today as I have always tried to maintain the best possible business relationship with that particular company. On inquiring, we were told that it was primarily because of the fall in the value of our house leading to a less positive debt ratio report from a credit rating agency, and that this could not be challenged because it was company policy.

This is, of course, precisely the sort of generic modeling that led to the credit problems in the first place. By relying more on actuarial models of risk than on an informed judgment based on an established business relationship, at least partly because of governmental concerns about possible bias in the lenders’ decision-making, the credit problems spiraled out of control. If you don’t know who is a risk and who isn’t, you’re reduced to making ill-informed general decisions that affect people on essentially an arbitrary basis (and if that isn’t prejudice, I don’t know what is).

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