Chicago,
24
January
2019
|
12:00 PM
America/Chicago

Credit Line Increases Drive Consumer Engagement and are Most Likely to Happen at the Beginning of the Year

TransUnion study explores how increases and decreases to credit card limits impact consumer behavior

Whether you were a spender or a saver this past holiday shopping season could have an impact on your credit card limit as 2019 begins. According to a new study from TransUnion (NYSE: TRU), consumers are 50% more likely to receive a credit line increase (CLI) between the months of January and May. However, credit line decreases (CLD) occur at twice the normal rate during the month of January.

To determine the consumer dynamics associated with a credit line increase or decrease, TransUnion controlled for risk and explored the profiles of a large sample of consumers who received a credit line change in 2016. The study found that these changes generally occurred within the first three years of an account opening. Overall, the number of consumers receiving either a CLI or CLD in 2016 was quite high with millions more receiving credit line increases.

Distribution of Credit Line Changes in 2016 in TransUnion Study

Month

Number of Credit Line Increases (CLI)

Number of Credit Line Decreases (CLD)

January

4,470,000

1,590,000

February

4,150,000

740,000

March

4,870,000

750,000

April

4,130,000

530,000

May

4,620,000

500,000

June

3,740,000

670,000

July

3,520,000

580,000

August

3,420,000

460,000

September

3,140,000

470,000

October

2,340,000

760,000

November

2,950,000

790,000

December

2,630,000

440,000

Total

43,980,000

8,280,000

“Responsible credit line increases can be beneficial for both lenders and consumers,” said Paul Siegfried, senior vice president and credit card business leader at TransUnion. “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.”

Following a CLI, balances typically rose 16% and then remained at that level for the next 12 months. This increase in the average balance per account was consistent across all risk tiers. In Q3 2018, the average credit card balance was $5,580, up from $5,483 over the same period last year. Overall, credit card balances are forecasted to increase to $5,657 by Q3 of 2019.

Not only did a CLI drive higher retention for consumers, the study also found that these consumers outperformed their counterparts who had not received an increased credit line. Among inactive accounts, a CLI helped drive activation and engagement at a rate nearly 3x of the control group.

Credit Line Increases Result in a More Engaged Consumer

Account activations* within six months after the credit line increase:

Risk Tier

Consumers with a Credit Line Increase in 2016

Consumers without a Credit Line Increase in 2016

Super prime

34%

15%

Prime plus

45%

16%

Prime

57%

21%

Near prime

70%

25%

Subprime

80%

27%

Total

47%

17%

*an activation is defined as a card that had a $0 balance in the two months prior to the study timeframe and then posted a balance within the following 6 months

VantageScore 3.0 risk ranges: Subprime= 300-600; Near prime= 601-660; Prime= 661-720;

Prime plus= 721-780; Super prime= 781-850

CLDs, however, can generate significant attrition. The study found that a CLD caused more accounts to drop to a zero balance and was often the first step toward a prime plus or a super prime consumer closing their account.

“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,” added Siegfried. “While it’s critical for lenders to utilize credit line increases and decreases to prudently manage their business, it’s also important to understand the implications of such strategies.”

For more information on the credit card limit study, please click here..

About the TransUnion Credit Card Study

TransUnion focused the credit card line change study on general purpose bankcards. Only consumers who had a credit line change on a single card in their wallet during the study timeframe were included in the sample. To drive simplicity in the study design and clarity in the results, TransUnion eliminated any cards that had an additional credit line change in the 12 months before or 12 months after the credit line change was observed. Cards with a 60+ DPD delinquency any time from 12 to 2 months prior to a credit line increase were also excluded from the study. The control populations of consumers had no credit line change on any cards in their wallets at any time during the study timeframe, and were matched by risk distribution and other factors to the line change sample.

About TransUnion (NYSE:TRU)

Information is a powerful thing. At TransUnion, we realize that. We are dedicated to finding innovative ways information can be used to help individuals make better and smarter decisions. We help uncover unique stories, trends and insights behind each data point, using historical information as well as alternative data sources. This allows a variety of markets and businesses to better manage risk and consumers to better manage their credit, personal information and identity. Today, TransUnion has a global presence in more than 30 countries and a leading presence in several international markets across North America, Africa, Latin America and Asia. Through the power of information, TransUnion is working to build stronger economies and families and safer communities worldwide.

We call this Information for Good.SM 

http://www.transunion.com/business