Will Credit Scoring Begin a Slow Death?

Recently, my credit card company arbitrarily reduced the credit limit on my credit card account. After spending an inordinate amount of time weaving through the automatic phone prompts, I finally reached a human being who told me that my credit limit did not support my income.

“Really? And how do you actually know what my income is?” I asked. Never have I ever asked to update my income information nor any changes to my employment I have been a loyal customer of this account since 1995 – almost 15 years. Never late. Never over-limit. Carried balances. In short – I am a profitable account for them. . She could not answer my questions – because she was simply using a rubric to adjust credit limits on their accounts. This is an example of today’s loan officer?

I went on to tell her that I have a 30-year credit record, am a homeowner with plenty of equity, have has the same employment for eight years – previous employment was 13 years, and carry a savings balance. In other words, if you use the old-school “Three C’s of Credit” – I am a responsible borrower who has demonstrated a worthiness to sustain the credit line.

No dice. Not only was I thunderstruck by this response, I realized that now, my credit score has been adversely affected because the proportion of available credit to my card balance has been reduced – through no fault of my own. I am the same borrower today that I was before this action, but because some robot changes my credit line – and as such my score – I am now less “worthy.”

Credit scoring has yet to be put to the test in a poor-lending environment. Delinquencies are on the rise, foreclosures are continuing, unemployment levels are at 26 year highs. What this means is that credit scores for a lot of people are being affected. And without the common-sense lending approach of lenders who use to rely on experience and instinct, I’m not sure how credit becomes available again to help the economy turn around if we don’t abandon credit scoring and return to the “Three C’s” of lending.

More importantly – who’s left in the lending community that can do that anymore?