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Study: Credit line increases most likely to happen early in the year

Summary

Find out when you’re most likely to get a credit limit increase or decrease. Understand how that affects consumer behavior.

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Study: Credit line increases most likely to happen early in the year

If you’re hoping to get a credit limit increase, you might want to ask for it before summer rolls around.

A new TransUnion study revealed that between January and May, cardholders are 50 percent more likely to receive credit line increases. However, they’re also twice as likely to receive credit line decreases during January.

In 2016, TransUnion explored the profiles of a large group of consumers who received a credit line change. The number of credit line increases in January 2016 was 4.5 million, compared to 1.6 million in credit line decreases. In February, both numbers went down, but in March the increases jumped to a year-high of 4.9 million and decreases went down to 750,000.

“Responsible credit line increases can be beneficial for both lenders and consumers,” Paul Siegfried, senior vice president and credit card business leader at TransUnion, said in a news release. “Credit line increases drive strong customer satisfaction as observed through higher activation levels and reduced attrition. Lenders experience an increase in balances without adverse impacts to risk when line increases are granted prudently. Additionally, lenders are better able to manage risk by lowering credit lines if they deem some consumers may not be able to maintain their accounts appropriately.”

See related: Should I ask my issuers to reduce my credit limits after my debt is paid off? 

The new study also showed credit line increases result in a more engaged customer. Here are some findings that support that:

  • When consumers got credit line increases, their card balances typically rose 16 percent and remained at that level for the next year. In Q3 2018, the average credit card balance was $5,580 – up from $5,483 over the same period in 2017. Overall, credit card balances are expected to increase to $5,657 by Q3 of 2019.
  • Credit line increases drove higher customer retention and generated balance growth.
  • Among inactive accounts – cards that had a $0 balance two months before the study and posted a balance in the next six months – a credit line increase helped drive activation nearly three times more than the control group.

Credit line decreases result in serious attrition

Conversely, credit line decreases caused significant attrition, and it resulted in more cardholders canceling their accounts. Credit limit cuts were often the primary reason why cardholders with credit scores of 721 and above closed their accounts.

“While a credit line decrease does lower the impact of delinquency, it can cause adverse behavior if applied to a previously well-performing customer. Decreases for a consumer who does not display high-risk behavior generates negative engagement, reduces activation and causes significantly higher attrition,” Siegfried said.

It’s important to remember that although federal law allows consumers some protections related to credit limit decreases, banks typically can decrease your credit limit as they see fit.

And if your bank decreases yours and you have a big balance on the card, it can ding your credit score by increasing your overall credit utilization. Credit utilization accounts for 30 percent of your FICO score, and a maxed-out card can lower your score by a whopping 45 points.

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Published: January 24, 2019

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