It’s important to provide cardholders with a sufficient line of credit because when they begin approaching more than 40% of their limit, they’ll typically pull another card out of their wallets to pay for purchases. The result is that they must now make monthly payments on the balances and finance charges on two or more cards, and your credit union loses fees and interchange income. Worse yet, they may decide to consolidate debt by transferring the balance on your credit card to another issuer. Thus begins the steady process toward thinking of another institution as their primary financial institution. The lesson is to regularly review your credit limits to extend the right amount of credit. If your limits are too rigid, you compromise your ability to grow your portfolio. This initiative aims to increase the credit card limits between 20% to 30% of the total portfolio annually.
Articulate a portfolio growth plan by reviewing credit limits periodically or quarterly, increasing the availability of consumption for accounts with good payment behavior and a high level of use of the line of credit (40% usage) that positively impacts the increase of billing and transactions.
An increase between 20% and 30% of the total portfolio will be established as a goal by reviewing the credit limits that will increase billing and transactions.
DEVELOP A PORTFOLIO MANAGEMENT STRATEGY AT THE LEVEL OF EACH CLIENT AND ESTABLISH GOALS FOR REVIEWING THE LIMITS FOR EACH ACCOUNT, INCLUDING:
• Indicators of usage of credit card limits by ranges of credit limits and by types of products.
• Frequency of transactions, billings, and balance outstanding differentiated by credit limits.
• Historical behavior of payments or arrears and the analysis of crop risk based on the age of the accounts.
• Evaluation by ranges of credit limits differentiating each one of the segments: Segment under limits between U$ 250 to U$ 1,000; Segment limits between U$ 1,000 to U$ 5,000; and high segment limits more than US$ 5,000.
• The increase in credit limits shows a lower level of risk between 30% to 40% than the acquisition of new accounts.
• It is recommended that the credit policy include control of the availability of credit limits for low and high-risk clients or inactive cards.