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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.
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.