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Credit Line Management through Analytics

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					                    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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posted:7/26/2011
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