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Do credit card issuers take your education into account when deciding how to market to you? A new study may offer some clues.

As economists Antoinette Schoar of the Massachusetts Institute of Technology and Hong Ru of Nanyang Technological University wrote in their paper, “Do Credit Card Companies Screen for Behavioral Biases?”, the credit card offers extended to financially savvy customers appear far different from those offered to “unsophisticated customers,” where sophistication is defined as education level.

But just how do those offers differ?


To uncover their findings, the economists analyzed a comprehensive data set from Mintel (a market research company) containing information on the types of credit offers that customers receive in the U.S. The data were based on a monthly consumer panel of more than 4,000 households, which were paid to collect all direct credit card mailers and send them to Mintel. (The data covered the period from March 1999 to February 2011.) For each month, there were approximately 4,000 households and 7,000 credit card mail campaigns; in total, 1,014,768 mail campaigns consisting of 168,312 different credit card offers were evaluated.

Using optical character recognition (OCR) software, the researchers identified commonly-used reward programs such as cash back, points and purchase protection. They also counted the number and size of pictures on each page, and extracted default annual percentage rates (APRs) from the scanned images of all credit card offers. To address missing data, they used a keyword searching algorithm to search for default APRs stated in the offers.

Back-Loaded Fees

The less education a customer had, the more likely they were to receive low introductory annual percentage rate offers and cards with no annual fees, the authors determined. They were also more likely to get offers for cards with higher late fees, higher over-limit fees and higher default APRs. “The reverse is true for sophisticated customers,” the authors said. “Customers with more education receive credit card offers that have smaller late fees, lower default APRs and lower over-limit fees.” They also received “significantly higher” front-loaded annual fees. The results were “a first indication that interest rates and fees are set not just with an eye toward credit risk but also toward the sophistication of the customer,” the authors said.

The American Bankers Association, a trade association for the banking industry, declined to comment on the study.

Different Sets of Rewards

“We see that there is a strong positive correlation with income,” the authors said of rewards cards offered to customers. For example, the odds of receiving an offer for a card with an airline miles program “increased significantly with the education level of the household,” the authors noted, with “households in the second-to-last highest income group … more than 6% more likely to receive an offer with a miles program compared to a household in the lowest educational bin.” They added, “because only 8% of credit card offers include a miles program, education seems to be a very important dimension in receiving miles programs.”

Smarten Up

Credit card issuers make decisions about how to market and promote their products, but you don’t have to limit your credit card choices to the ones sent to you in the mail.

When opening a new line of credit, it’s a smart idea to ask questions and review the terms and conditions before signing up. You may also want to work on improving your credit, as this can show creditors you’re worthy of better offers and capable of responsibly managing your finances. You can start tracking how your behavior is affecting your credit by signing up for a free credit report summary on Credit.com.

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