Card Issuers Get Personal to Check Credit

When it comes to staying in good graces with your credit-card company, having an unsullied credit record might not be enough.

Lenders have long relied on consumers' credit scores to decide whether to approve card applications and how much credit to extend and at what interest rate. Now, as financial firms face rising losses because of the weakening economy, some big card issuers are digging deeper into their customers' personal lives. They are scrutinizing where cardholders live, for example, and what line of work they are in.

Card-industry executives say the heightened focus is directed especially at residents of states hit hardest by the housing slump, such as California, Florida and Nevada. Cardholders who work in struggling industries like construction and finance also are feeling a tighter squeeze, with their credit lines suddenly reduced sharply even if they always paid their bills on time and in full. Other consumers are bumping up against myriad other restrictions.

Michael Shortt, who owns a television-production company in Savannah, Ga., says American Express Co. slashed the credit lines on three of the six AmEx cards that he uses for his business, even though he routinely pays them off every month. Two of the credit lines shrank to $1,000 from $6,000, and the third was reduced to $36,000 from $42,000.

When he called the New York company's customer-service department, Mr. Shortt says he was told that his available credit declined because he hadn't supplied information about his company to Dun & Bradstreet Corp., which provides credit data on small businesses. On Saturday, Mr. Shortt got a letter from AmEx notifying him that his $36,000 credit line was being cut to $4,300. He cut that card up Wednesday, he says.

"Of all the people that [AmEx] would want to mess with, why would it be a customer who pays their bills on time and spends a great deal of money?" says Mr. Shortt, who says he has accumulated 780,000 rewards points through his American Express cards. He says he gets calls from Dun & Bradstreet, but he doesn't feel comfortable providing information about his business, especially over the telephone. A Dun & Bradstreet spokesman couldn't be reached to comment.

A spokeswoman for American Express declined to comment on Mr. Shortt's situation but says the card issuer does rely on information provided by Dun & Bradstreet and other sources to help determine credit-worthiness. "We are being more targeted in managing risk prudently within appropriate customer segments," the spokeswoman says.

The greater scrutiny reflects lenders' attempts to slow a rising tide of delinquencies and losses from their consumer businesses. Washington Mutual Inc., a big provider of credit cards for subprime borrowers, or those with relatively weak credit ratings, expects credit losses will rise to 9.5% to 10.5% of its total credit-card loans this year, up from 6.9% at the end of 2007. J.P. Morgan Chase & Co. expects its credit-card charge-offs to rise to 6% next year, up from 4.37% in the first quarter of 2008.

According to the Federal Reserve's latest survey of senior loan officers, 30% of banks said they tightened lending standards, including requiring higher FICO credit scores, on credit-card loans between January and April. That is up from about 10% in the Fed's survey in January.

Few lending officials will openly discuss their company's latest techniques for assessing consumer risk, claiming rivals could steal their secrets. But executives acknowledge that the result is increased stinginess, even with applicants and existing customers who raise no red flags based on their credit scores.

Asked recently how Bank of America Corp. is getting pickier about extending consumer credit, Chairman and Chief Executive Kenneth D. Lewis Jr. responded: "That would be higher FICO scores and then an overlay of a human being looking at the credit." A Bank of America spokesman declined to comment further.

Discover Financial Services says it has cut back its marketing programs in geographical locations it considers to be of "rising risk" and is reining in automatic credit-line increases in those areas. A Discover spokeswoman declined to identify the specific states where the company is taking those steps.

A spokesman for J.P. Morgan declined to provide details of the bank's underwriting practices but noted that the credit-card division has been reaching out to customers who are showing "some signs of stress," such as making late payments or regularly going over their credit limits. Previously, the bank would only reach out to customers after their accounts were delinquent.

The J.P. Morgan spokesman said that if the bank detects increased evidence of risk, it may lower a consumer's credit lines. At the same time, if the customer is in financial trouble, the bank might arrange for a special payment program, or reduce or waive fees, in hopes of getting the customer to pay off the outstanding balance.

Cardholders who find themselves cut off from credit likely won't have much luck pleading their case with a customer-service representative. That is because the card issuers are trying to stick to their guns in an attempt to limit future losses. Instead, consumers may have more luck shopping around for higher credit lines, since the card companies each have their own criteria for determining credit-worthiness.

Card issuers are "caught between a rock and a hard place" as they make these types of credit decisions, says Tony Hayes, a partner at consulting firm Oliver Wyman. "On the one hand, they've got to limit their exposure. But, on the other hand, if they are too aggressive, they will sully their reputations and risk tarnishing their brand."

Raising the bar on consumers also could backfire for card issuers if a reduction in credit lines winds up creating financial problems for the customer, Mr. Hayes says. Then, "what you may have done is accelerate the rate at which the account goes bad."

Peter Schiff, president of securities-brokerage firm Euro Pacific Capital in Darien, Conn., has been downbeat on the economy for months but never thought he was the kind of customer that AmEx would worry about. That changed a few months ago when one of his employees tried to book a block of hotel rooms for a seminar on the firm's corporate AmEx card. The card was declined, and Mr. Schiff subsequently discovered that AmEx had cut his $40,000 credit line to $4,500.

Mr. Schiff says an AmEx customer-service representative told him that his business had been identified as "high risk" and that American Express was trying to reduce its exposure to the financial-services industry. An AmEx spokesman declined to comment.

After trying unsuccessfully to reinstate his credit limit, Mr. Schiff recently switched to a Visa card from Bank of America that has a credit limit of $88,000. "I had been saying all along this would happen. Little did I know it would happen to me," Mr. Schiff says.

Write to Robin Sidel at robin.sidel@wsj.com