Credit card companies are watching your purchases

by Karen on July 15, 2009

While I don’t recommend using credit cards to rack up debt, the unfortunate truth is that maintaining a credit history can be an important part of good finances. After all, your credit history is what determines interest rates and credit-worthiness for even “good” debts like mortgages and (sometimes) car payments. Even if you have a zero tolerance policy when it comes to all debt, your credit history can affect your car insurance rates, job search, and your ability to rent an apartment.

As the economy worsens, credit card companies are looking for excuses to cut spending limits or close accounts. Both of these actions can negatively affect your credit history.

Even if you’re a responsible credit card user, you may be using your card on monthly purchases or charging things just to maintain your credit activity and avoid account closure. Well, it turns out credit card companies could be watching even responsible purchases to weed out users who they deem a poor risk.

Last week, I read an interesting article outlining the top 10 purchases not to make on a credit card. According to the article, credit card companies are watching statements closely to look for “red flags” that may indicate borrowers are in trouble. The most surprising item on the list: bargain shopping. It turns out that using a credit card at a bargain store like Wal-Mart signifies to credit card companies that you may be in financial trouble. Also on the list: tires and other big ticket necessities, marriage counseling, and income taxes.

I don’t know about you, but we’ve definitely charged big ticket items like tires or plane tickets on a credit card just to keep the account active. Even though we have the cash, we make the purchase with a credit card to keep the account active and rack up rewards points, then pay it off immediately when the statement arrives. I had no idea that could lead credit card companies to take action that could negatively affect my credit score.

To me, this is just another reminder of why credit cards stink. On the one hand, they’re necessary to build and maintain a good credit history, but I absolutely hate being at the mercy of a credit card company even now that I don’t carry any consumer debt.

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{ 9 comments }

1 Meg July 15, 2009 at 9:00 am

This is my first time commenting, though I’ve been lurking for a while…I drop by every day to see what you’re up to! I just wanted to point out that, unless I’m missing something on the list, I don’t think they’re telling you to avoid putting tires and other large purchases on a credit card. It only refers to having your tires retreaded in lieu of buying new ones. People obviously need to be careful with credit cards but I’d hate for anyone (myself included – we charge everything!) to be unnecessarily afraid of using them.

2 Jill July 15, 2009 at 9:08 am

Yikes! We use our credit card for pretty much everything and pay it off IN FULL every month, and we get cash back pretty regularly. I regularly use it at W/M and Target and for haircuts and such. I had no idea those things could be viewed poorly. However, I never-ever-ever use my CC for cash advances, and have threatened my younger brother within an inch of his life that he is NOT to do that under any circumstances, that he is to call me first if he needs money that bad. I witnessed my parents going thru bankruptcy when I was about 13, so that road is not enticing to me. Thanks for sharing this article!
.-= Jill´s last blog ..Challenge: so far, so good =-.

3 paulina July 15, 2009 at 9:19 am

Ah but you see, it’s not buying big-ticket items like car tires… it’s paying to have your existing tires re-tread (cheaper option) because you can’t afford to purchase new tires. That’s the red flag.

4 Carla July 15, 2009 at 9:59 am

Very interesting. I closed two credit card accounts recently because they raised my interest rate…. because of inactivity. Apparently, having a zero balance and not charging anything must be a red flag of some sort.
.-= Carla´s last blog ..Zonked =-.

5 Karen July 15, 2009 at 1:30 pm

Meg & Paulina: Thank you for pointing that out. I misread. :) I’m happy to see that putting a purchase like tires on a credit card isn’t a red flag. I’m still a big proponent of keeping an emergency cash fund on hand to handle purchases like that without having to deal with a credit card!

6 Kacie July 15, 2009 at 4:29 pm

Guess what I charged today? Tires! Lolz. New ones, not retreads.

And dangit, these boogers had better last me for the full 50,000 miles! My factory-installed ones tuckered out at less than 30k and that makes me mad.
.-= Kacie´s last blog ..Meal-planning inspiration =-.

7 frugalchick July 20, 2009 at 2:23 am

Hmmm…I always shop at Walmart and I don’t think CC companies view my shopping there poorly. I still have a high FICO score and my interest rates are reasonable although I don’t carry a balance. I pay off my cards in full each month. They should worry if I start shopping at Nordstrom cause that means I don’t care about my finances anymore.
.-= frugalchick´s last blog ..High Yield Checking Accounts =-.

8 Karen July 20, 2009 at 8:01 am

I think the idea is that if these habits are recurring, they may lower your credit limit or cancel your card, which would then affect your FICO and interest rates on future accounts.

9 Erin July 23, 2009 at 10:15 am

Wow that’s a scary list: basically both bargains and luxuries are suspect, so you can’t win.
.-= Erin´s last blog ..Baby Kisses =-.

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