The secret way banks keep tabs on you

Banks have a secret, sneaky way to keep track of what you're doing - and if you're not careful, you could find yourself in serious financial trouble.

What do you know about 'Risk Triggers'?

Nothing? Well, it knows a lot about you.

Risk Triggers is "daily monitoring service" from Experian that allows banks, credit card companies and lenders to find out "derogatory information such as bankruptcies, judgments, liens and late payments" within 24 hours of it being noted on your "file".

In other words, the moment you misbehave - even if you miss just one payment - all the other financial institutions you are involved with, from your credit card provider to your mortgage lender, can receive an alert informing them of your misdemeanour. And there's no way you can stop them or opt out - when you sign up to get the credit in the first place, you have to give them the right to check up on you in this way at any time.

And what will the banks do with this information they are sharing about you behind your back? Again according to the website, Risk Triggers enables "credit-grantors" to "manage potential delinquencies in the earliest stages".

What does that actually mean for you and me?

Down the slippery slope

Imagine this scenario. You go away on holiday, move house, the post goes missing - or perhaps you simply forget. But for whatever reason, you fail to pay one of your credit card bills for one or two months.

The next thing you know, you receive a letter from one of your credit card providers. The letter informs you that the credit limit on your card has been cut, instantly, and you are no longer allowed to spend as much as you had once been able to.

There's no explanation.

The next day, you receive a letter from your bank. Your overdraft limit has been reduced.

Again, there's no explanation.

It's terrible timing. You are committed to make a large purchase that month, and suddenly your finances are in disarray. So again, you miss a credit card payment and perhaps you are, for the first time ever, late with your mortgage payment.

Instantly, another letter arrives in the post, this time from the mortgage lender. It warns you that failure to meet your mortgage payments could lead to your home being repossessed, and implies you are in serious financial trouble.

It is one of the scariest letters you have ever opened.

A nightmare come true

Are the hairs on your neck starting to stand up? If not, they should be - because this nightmarish situation is becoming a reality for many. Just last week, The Guardian reported that credit card providers are suddenly slashing their credit limits for borrowers with excellent credit histories, basing their decision on information they have discovered about the borrower through their credit report.

But while I think it is appalling that banks can share information about you without your knowledge or explicit permission, and there is no way of stopping them (except, of course, by living a credit-free existence), I wonder whether - for some people, at least - the Experian service is actually proving to be a blessing in disguise?

Risk Triggers will, for example, pick up on the fact that a customer has started applying for lots of credit suddenly, perhaps in order to pay their mortgage. Shifting debt around in this way often only delays the inevitable - repossession --while racking up thousands of pounds in extra interest charges on the credit card.

Experian argues that reducing the amount of credit available to someone who is in real financial trouble (and therefore basically living on borrowed time as well as borrowed money) could force that person to seek help and address his or her debt problems sooner rather than later. This could potentially save that person a lot of money, and may even prevent him or her from going bankrupt.

To some extent, I can see the point of this argument. And if I could be certain banks were only going to take action when a real problem emerges (for example, if someone misses several payments in a row or on several different credit cards at once), then I would be able to rest easier in my bed. But the fact that they could, in theory, decide to take action after you miss just one payment on just one card - without bothering to find out why this happened -- that worries me a lot.

What do you think? Have you ever be turned down for credit for no reason or had your credit limit suddenly slashed? Let us know using the comments box below.

Finally, don't forget you can beat the banks at their own game by downloading your own credit report to find out what information the banks are keeping about you. You can get access to your credit report for free for 30 days via lovemoney.com - just make sure you remember to cancel before the 30 days are up.

This article has been edited and updated from an earlier version published in 2007.

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