Proactive Credit Line Increases: Hidden Value in your Credit Card Portfolio

Have you ever been in that Sales & Marketing meeting? The one where phrases such as “grow the pie” and being “disruptive in the marketplace” dominate the conversation. My “favorite” part of that meeting is when some “genius” speaks up and says:

…you know, it costs up to 7 times more to acquire a new customer than to retain an existing customer.”

This statement is met with an eye-roll because it is easy to recite intuitive stats, but hard to come up with concrete ideas that actually unlock additional value from current members. As this conversation-killer draws the meeting to an end, how likely is it that you leave the meeting with a tangible answer for how to better tap into your current member base?

Luckily at Twenty Twenty Analytics, we don’t have meetings like that – we have solutions. For this particular marketing riddle, our solution is the Proactive Credit Line Increase (CLI).

Scenario
Twenty Twenty’s CLI service is an analytical evaluation of a cardholder’s credit fundamentals to identify if that member merits a higher credit limit. The value unlocked through CLI is best illustrated by two hypothetical cardholders with the following profile: a strong credit score, multiple products with the Credit Union, and they never miss payments.

In the scenario of “Cardholder 1”, the Credit Union is confronted with a good borrower who is just about maxed-out. Your only hope for unlocking incremental value from “Cardholder 1” is for the borrower to fund what’s left of their limit.

“Cardholder 2” refuses to use your card because the relatively low limit does not align with their spending habits, and prefers another card that has a higher limit.

Action
When faced with scenarios like these, what should a lender that values good members do? To answer that, let’s explore the CLI process. By collecting and examining credit-related data points for each borrower, a borrower risk profile is built to determine if the Credit Union would benefit from awarding a higher credit limit. At the foundation of this risk profile is determining the cardholder’s “ability to repay” in a way that satisfies Regulation Z requirements. To achieve those objectives, issuers are permitted to rely on information provided by the consumer or may also consider information obtained through any empirically derived, demonstrably and statistically sound model that reasonably estimates a consumer’s income or assets. Twenty Twenty Analytics, through its relationship with TransUnion, harnesses income estimates derived from reported trade line and payment information that is validated by comparing estimates to individuals’ actual 1040 information.

Result
Assuming we determine that both “Cardholder 1” and “Cardholder 2” should be eligible to have their credit line increased to $2,000, what are the results? The increase reduces “Cardholder 1’s” current credit utilization from 90% to 45% and awards “Cardholder 2” a credit limit that more closely matches their spending habits. This results in a higher likelihood that both cardholders will move your card to the front of their wallet and increase their activity, unlocking incremental value from your current member base.

What about the “genius”?
This simple illustration shows that incremental value can be obtained within your existing (and more cheaply-acquired) membership base in a risk-responsible way by giving borrowers more headroom to “charge-it”. The beauty of this program is that only cardholders that meet the preferred risk profile and have the “ability to pay” receive the credit increase. Perhaps the most satisfying takeaway is that, next time, the “genius” in your marketing group will have to come up with a different cliché to kill the meeting.

-Alan Veitengruber
Twenty Twenty Blogger

If you are interested in learning more about Twenty Twenty’s CLI services, reach out to Dan Price or Alan Veitengruber.

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