CREDIT-CARD companies are to start sharing information in the spring that will help them weed out prudent and therefore "unprofitable" customers for the first time.
Banks have been talking to industry bodies for several months about a new initiative that will enable them to identify consumers who clear their balances in full every month, or who constantly switch to 0% deals. Such customers make the banks no money because they do not pay punitive interest charges of up to 28%.
The disclosure follows Egg's controversial decision to cancel the cards of 160,000 customers this month. It claimed they were "high risk" - in other words, they had missed payments or borrowed beyond their means.
However, hundreds of Egg customers came forward to say their cards had been cancelled even though they had never missed a payment, or cleared their balances in full every month.
This raised speculation that Egg, owned by America's Citigroup, had cancelled the cards simply because it was not making money from them - and this will become much easier under the new initiative.
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At present, the only information banks share includes when a card was issued, when it was closed, the balance and whether or not there have been any missed or late payments. From the spring, however, customers can be vetted by lenders to see if they pay off their balance in full each month, and make use of promotional 0% deals.
Card firms will also be able to see more signs of "high risk" behaviour such as withdrawing cash with a credit card, and big changes in a customer's credit limit.
The sharing of this additional "behav-ioural" information will conclude a two-year project overseen by Apacs, the UK payments authority, to help lenders better judge risk.
However, consumer groups warn the move - the first change for more than a decade - could mean more customers are denied credit.
Steve Willey, head of credit cards at Moneysupermarket, the price-comparison site, said: "Though this information is meant to help lenders make more informed decisions, there is a danger they could use it to deny customers who aren't necessarily a risk."
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Credit-card providers such as Barclaycard, HSBC and others have already tightened their lending criteria in response to the credit crunch by asking customers who don't use their cards to justify why they need them.
Lloyds TSB charges some customers a £35 "inactivity fee" if they have not used their cards in 12 months.
Equifax said its latest survey, conducted just before the credit crunch, showed a 10% increase in the number of credit-card rejections over the past year.
Neil Munroe at the credit-reference firm said: "Minor misdemeanours, such as missing a telephone-bill deadline, which may have been overlooked in the past, may not be now."
Although the "behvioural" information will be made available in the next couple of months, some industry insiders say it is already being circulated under a "principle of reciprocity", where banks will pass information between each other if another bank is prepared to disclose a similar level of information.
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Here we answer your questions.
What information is currently kept on me by credit reference agencies? The number of credit cards you've applied for, when they were issued, when they were closed, the balance and whether or not there were any missed or late payments.
They also hold information about how many bank accounts and loans you have, what your credit limit is, how many times your credit file has been checked by lenders, and any county-court judgments against you.
What information is kept on me by my bank? Banks have more detail about the way you use cards. This behavioural data includes how much of a balance you pay off each month, and how often you use your card.
So is that why Egg could throw out customers who had a good score from the credit reference agencies? Yes. There is no guarantee you will have a good credit score with your bank even if a credit-reference file labels you as low-risk. This is because lenders have their own rating system which uses "behavioural" information. It will also weigh information differently from credit-reference firms or other banks.
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What will the new initiative mean in practice when I apply for a card? A lender you have never used before will now have a better idea of the way you use your card and could, for example, decide it does not want to offer a card to a customer who simply makes use of promotional 0% deals, or pays off their balance in full each month as this will not make them any profit.
Isn't data sharing against the rules? No. Sandra Quinn of Apacs said: "When you sign up to a credit card, you are giving permission for the firm to pass on this information to other providers."
Could I be thrown out? Banks could cancel your card even if you have a good credit rating on your file if they don't like your behaviour. They do not have to explain why or give details of the score they hold for you.
Alternatively, a bank could reduce your credit limit if you do not use your card enough or if you hold a number of cards.
If your credit limit is reduced, a bank is unlikely to demand you pay off the balance above the new limit. Instead it will gradually reduce your limit as you reduce the balance on the card.
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If your card is cancelled, the lender will stop allowing you to make additional purchases on the card. It will allow you to continue making payments to reduce the balance until it is settled.
FIRMS THAT MARK YOUR CARD
- Barclaycard has lower credit limits for those who have never held a card before.
- Barclaycard and HSBC customers who do not use their cards for more than a year may be contacted and asked if they wish to continue holding it.
- MBNA charges £10 if you have a positive balance on your card.
- Halifax will start to reduce your credit limit if you have lots of credit cards.
- Lloyds TSB has introduced a £35 annual fee for customers who have not used their card for 12 months.
- Coop customers have complained that their credit limits have been cut after making large purchases.
HOW TO CLEAN UP YOUR FILE
- You can check your file by contacting Callcredit, Equifax and Experian. It costs £2 for each file to be looked into.
- If you regularly take advantage of 0% deals, and then forget to cancel a card at the end of the promotional period, your lender may reduce your credit score.
- If you missed repayments on an account you have subsequently paid off, check this has been removed from your file. Lenders take the number of searches on your credit file into consideration.
- If you spot an error, write to the credit-reference agency to ask it to remove or change the entry, explaining why it is wrong and sending evidence. The agency has 28 days to act, and the entry is marked as 'disputed' in the meantime.
CANCELLED - AND I NEVER MISSED A PAYMENT
MOYA LUCAS, 23, a life-insurance adviser from Chester, was shocked to receive a letter from Egg saying that her card had been cancelled.
Although she has held the card for more than four years, she has never missed a payment and has always paid off at least the minimum each month.
Moya says she uses the card all the time. 'I do most of my shopping on it and take it on holiday.'
If she carries a balance over to another month, she always pays it off the month afterwards.
Moya suspects that she may have been singled out because she has withdrawn cash with her card while abroad.
'I don't understand how I can be seen as a credit risk,' she said.
'I checked my Experian credit file, which said that I have a very good score.'