Credit Line Management through Analytics Alfred Furth, Vice President of Portfolio Analytics and Risk Jim Gentile, Portfolio Analytics Unit Manager Effective credit line management is a key process in maintaining profitability in a credit card portfolio. There are many different points in the consumer credit lifecycle where increases or decreases to a credit line can enhance profitability and mitigate risk. The key to effective credit line management is a better understanding of the customers and segments of customers contained in a portfolio through analytics. Management of credit line begins with proper assignment at origination. Customers with higher credit bureau scores like FICO or VantageScore ™ are less likely to default and therefore are more worthy of higher lines. Typically the best option for a card originator is to use an additional score to mitigate risk within the credit bureau score ranges. CAPITAL Card Services has successful experience creating custom risk models based on credit bureau attributes that help identify the risk level of accounts within a set bureau score band. Effective credit line management also includes on-going maintenance of existing accounts. At CAPITAL, the risk based credit line management approach utilizes the external payment and credit behavior that is reflected in a consumer’s VantageScore ™ combined with an internal payment and credit behavior score. This combination creates risk based segments of the portfolio that support the decision engine surrounding credit line management, whether being used to retain an account, proactively offer a credit line increase, or proactively decrease a credit line to reduce risk. The tables below outline a simple example of a potential credit line strategy. Risk Profile Assessment Credit Line Strategy Table Behavior VantageScore Risk Credit Line Strategy Score < 700 700‐799 800+ High Decrease credit line to nearest $50 over balance due < 650 High High Medium Medium Increase Credit Line $750 650‐749 High Medium Medium Low Increase Credit Line $1500 750+ Medium Medium Low If a customer calls to request a credit line increase, a customer service representative uses our ACES system to view the customer’s current risk profile and assess whether or not to grant the credit line increase. Based on new government regulations, an assessment of the customer’s ability to pay must also be done at that time. Currently, CAPITAL’s clients use a debt-to-income calculation based on income given by the client and debts listed on the cardholder’s credit bureau information. A customer with a Vantage Score™ of 810 and a Behavior Score of 640 would receive a $750 credit line increase based on their risk profile from the table on the left and the strategy table on the right and passing the pre-selected debt-to-income ratio. On the flip side, a customer may have gone delinquent with a $5,000 credit line and $3,437 balance, driving their Behavior Score to 614 and VantageScore™ to 665. A proactive credit line decrease to $3,450 may be necessary to mitigate the risk this customer has on the portfolio. Effective credit line management can improve profitability by both increasing revenue through interest income and mitigation of large default balances. Contact CAPITAL Card Services today to discuss ways to improve portfolio performance with credit line management through analytics.
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