Moneyball

In the movie “Moneyball” the viewer is introduced to Sabermetrics, an advanced statistical model for measuring the relative value of different possible combinations of players. When first introduced by the Oakland Athletics it revolutionized the way scouts and managers built baseball teams. With a payroll of just $41 Million Oakland was able to compete with the New York Yankees who then had a payroll of $125 Million. Today all the teams in professional baseball use some variation on these techniques.

Somebody else is playing Moneyball, your credit card company. According to a 2009 article from the New York Times entitled “What Does Your Credit Card Company Know About You?” the revolution began back in 2002 at Canadian Tire. One of their executives, J.P. Martin began to analyze every single credit card transaction from the previous year. As he sorted through this data he discovered our purchases were “a window into our souls.” What we bought as well as the brands we bought were in and of themselves very good predictors of our willingness to pay off our debts. Some his discoveries seem pretty funny, “People who bought carbon-monoxide monitors for their homes or those little felt pads that stop chair legs from scratching the floor almost never missed payments. Anyone who purchased a chrome-skull car accessory or a “Mega Thruster Exhaust System” was pretty likely to miss paying his bill eventually.”

Go figure.

Credit Card companies began to turn over their data to research psychologists, specializing in advanced statistical methodologies. They discovered that, “the biggest profits didn’t come from people who always paid off their bills but rather from less-responsible clients who never paid their entire balance, and thus could be milked through silently skyrocketing interest rates, late fees and other penalties.”

But how to separate the high desirable slightly irresponsible ideal victim from the total deadbeat?

The credit card companies began all kinds of experiments, trying different colors on their card to changing the size of their envelopes as well as more understandable experiments involving test groups of recent immigrants and native born Americans.

They also applied different therapeutic models to the collection process. Collection agents were taught how to illicit information based on Abraham Maslow’s hierarchy of needs to tailor an approach that would most likely work on a particular victim who had fallen behind in his payments. An example given in the article involves a man and his ex-wife. Rather than attempting to bully or threaten the card holder, the collection agent started with a pitch based on the “love/belonging” level of Maslow’s hierarchy. Then based on the client’s response he changed midstream to the “esteem” phase where self respect is the primary drive. It worked.

Moving forward in time to 2013, Business Insider reports on “Five Little Known Ways Credit Lenders Keep Their Eyes On You.” The author begins with a personal story. He finally paid off two of his credit cards. After months of not using one of these cards he received an amazing offer from his bank, a 5% refund on any travel related purchases made before a certain date, “Go ahead you deserve that vacation. You’re bored. We’ll help you.”

The credit card company was using something called your Behavior Score. They are not only looking at how much you are using the card, they are also evaluating how you are using the card. If you are paying down your balance, they will make you an offer you can’t refuse. If you switch from Nordstrom to Walmart for your clothing purchases the credit card company will suspect you are in trouble. They will begin to find ways to limit their exposure to your problems.

Your credit card company is using something called a Revenue Score to find those ideal victims who carry a large balance and put up with rising fees and interest rates. They will use this score as a basis to incentivize your spending habits and exploit your weaknesses.

Your Bankruptcy Score doesn’t have anything to do with whether or not you are currently in or recovering from a bankruptcy. It predicts how like you are to go bankrupt. Not surprisingly this score is important when opening a new credit card account. It will be used to set your credit limit and your interest rate. Adrian Nazari, CEO of CreditSesame.com advices in order to have a good Bankruptcy Score, "Pay your bills on time, keep debt balances low, open accounts only when necessary to avoid excessive inquiries on your credit report, and monitor your credit report regularly to ensure it is accurate."

Your Collection Score will be used by the credit card company to tailor a method to collect as much as possible using their existing resources. If your score is low enough they will not waste their time with sophisticated telephone “counseling.” Adrian Nazari comments, "The lower your collection score, the less likely a debt collection agency is to aggressively pursue you because the agency doesn’t want to waste valuable resources trying to collect debt that is unlikely to be recovered.” This is not a problem if you debts have not gone to a collection agency. If they have gone to collection talk to the collection agent, negotiate a better deal, and keep a complete paper trail of all communications.

The last score covered in the article is one called the Attrition Score. You don’t want to improve this score. It tells the credit card company you might jump ship by giving your business to one of their competitors. Nazari says, "When this score is high, it tells lenders that they may need to sweeten the pot and offer you various perks so they can continue to make you happy and committed," You can also annoy your credit card company by simply not using their card.

Hmm… Now there’s an idea.

The credit card companies never rest. They have hired the some of the best minds available in fields of finance, psychology, and statistics to separate you from your money. These people, many of whom have Ph.D. after their name, know what you are doing. They can predict your actions and reactions with great accuracy. They know you better than you know yourself.

Don’t mess around thinking you can outwit this machine. Don’t use a credit card unless you pay it off every month, on time. If you can’t, lock it up until you have paid your balance down to zero. If you have a history of credit card problems, cut them up. Use a debit card instead of a credit card. There is less risk. You might even think about using cash more often. The credit card companies issue debit cards but they don’t track cash. There is a psychological benefit to using cash. It is very much harder to let go of a hundred dollar bill than it is to use a credit card. If you use cash more often you might actually spend less.

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