How credit card companies track you
TEXT OF INTERVIEW
Tess VIGELAND: I like to think I know a lot about credit cards. After all, I use them. I report on them.
But then I read Charles Duhigg’s story in this weekend’s New York Times Magazine about how card companies use the data from the stuff we’re buying. The article is called “What Does Your Credit Card Company Know About You?”
And Charles, I guess the simple and somewhat terrifying answer to that question is . . . A heckuva lot more than you think!
Charles Duhigg: They might actually know more about you than you know about you.
VIGELAND:Tell us what the card companies are looking at, and what they’re doing with that information. It’s all about what we’re buying, right?
Duhigg: Right, right. The card companies, about a decade ago, became very interested in understanding cardholders and consumers as psychological beings.
They’ve built these massive laboratories where they can track what you buy with your card and sort of deduce a lot of things about you, based on those patterns. So, for instance, a good example is the study done by Canadian Tire in 2002. Canadian Tire is a big retailer that sells all types of things. It’s like Wal-Mart.
What one of the executives there did, he looked at how people were using Canadian Tire credit cards and tracking what products they actually purchased. Then he found out that people, who for instance buy premium wild bird seed, it turns out that they very infrequently went bad on their debts. Whereas people who bought chrome accessories for their car, they walked away from their debts more frequently.
VIGELAND: And the fascinating part of that is what, for example, the bird seed purchase told them.
Duhigg: So, if you buy premium wild bird seed, you’re spending a lot of money on something that you’re going to give away to birds you don’t own.
VIGELAND: Right.
Duhigg: They basically figured out that they types of people who do that, pay off their credit card on time, because they feel this sense of moral obligation.
VIGELAND: Geez. You know, Charles I hate to think of what they know or think they know about me, based on the fact that, I don’t know, in the last week I used my credit card for a charity donation, I think I bought a few t-shirts, a shampoo and haircut for my dog.
Duhigg: Well, see all of those things might actually say that you’re a great bet for the credit card companies. What they’re really looking for is they’re looking for changes in how someone uses their card and what that says.
So for instance, let’s say that you never used your credit card to buy groceries before. And all of a sudden, you start using it in the grocery store. What that’s going to say to the credit company is, you’re going through a period of financial distress.
And so they’re going to get on the phone and they’re going to try to figure out what’s going on with you, Tess. Is there a chance you’re not going to be able to pay off your credit card bill this month? And if you say, “Yeah, you know, things are shaky at work” or “I don’t have that much money lately,” then they’re going to start using their psychological profiles to figure out what type of persuasion is going to work best with you.
Are you the type of person who needs a kind of tough love and a firm rap on the knuckles? Or do you need someone who is going to offer a shoulder to cry on?
VIGELAND: You know, it’s almost like these card companies are anthropologists making field notes. Should any of us be surprised about this, that they’re tracking every little thing that we do with our cards?
Duhigg: Absolutely not. And what’s interesting is, it’s not that they’re anthropologists, because they’re much more scientific. The credit card companies are one of the few industries on earth that get millions and millions of new data points every single day. Anthropologists have to look at, like, fossil records.
The credit card companies can run little experiments. They can offer you a new deal next month or give you a certain type of phone call and see how you react.
VIGELAND: They’re watching for how often I check my balance.
Duhigg: Not only how often you check your balance, what time of day you check your balance.
Are you checking your balance, say, one in the afternoon, when you should be at work? Or one in the morning, when you might be sleepless, because you have anxiety over how much credit card debt you have.
And these techniques that the credit card companies use — where they can get much, much more specific about the credit worthiness of a particular consumer — it let’s them analyze much much better how much credit each person should be given access to.
VIGELAND: Charles, there’s legislation pending right now to tamp down on some of the more egregious credit industry practices. But after your reporting, what do you think the future of credit cards looks like?
Duhigg: Well, certainly the future of the industry is going to be a more constrained one in the short term. A lot of these things that Congress is pushing through are going to make it much harder for credit card companies to play a lot of the sneaky tricks that have fattened their profits for a number of years, like fees and skyrocketing interest rates.
But the other part of how the credit card industry is going to change over the long term is they’re going to want to know their customers much, much better, before they give you a card in the first place. If you have a checking account with CitiBank, they’re going to want you to have a credit card with them too and your mortgage. Because the more ways that they touch your financial life, the more data they’ll have about you.
In the past, it used to be a company would say, “I know nothing about you. I’m going to give you a card and then I’ll figure out six months from now how much I should charge you in interest. Now credit card companies are going to have to judge what interest rate they should charge you ahead of time. And so they’re going to focus a lot on people they already have data on, instead of those people who are unknowns.
VIGELAND: Well, I was just about to make a snide comment about Orwell, but I suppose, if we’re getting ourselves into this stuff, if we want the credit, we’ve got to buy into them knowing everything about us.
Duhigg: The truth of the matter is that there’s a price to be paid for everything, unfortunately.
Anyone can always opt out of the credit card economy. All you have to do is buy a pair of scissors for $2.
VIGELAND: Charles Duhigg is a staff writer for The New York Times. His article in this weekend’s Sunday magazine is called “What Does Your Credit Card Company Know About You?”
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