Why CapitalOne just don't give people CLI ?

[w20031424]

I've seen a lot of people with 10+ years credit history and 100K+ total credit line, but their Cap 1 platinum card just got stuck at $500 or $750 CL. And only after they called the Executive Office did their cards got upgraded or CL raised.

I'm just curious that what's their problem? Can't they come up with a better algorithm that gives those obviously creditworthy cardholders more credit than the meserable $500? Disocver Card is also konwn for being conservative, but instead, they act reasonably and predictably most times. I just can not see the rational behind Cap 1's behavior.

[FinStar]

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@w20031424 wrote:

I've seen a lot of people with 10+ years credit history and 100K+ total credit line, but their Cap 1 platinum card just got stuck at $500 or $750 CL. And only after they called the Executive Office did their cards got upgraded or CL raised.

I'm just curious that what's their problem? Can't they come up with a better algorithm that gives those obviously creditworthy cardholders more credit than the meserable $500? Disocver Card is also konwn for being conservative, but instead, they act reasonably and predictably most times. I just can not see the rational behind Cap 1's behavior.

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I think this largely depends on the type of product the individual was originally approved for (subprime vs non-suprime) and other internal scoring factors.  Personally, I still have a couple Capital One CC's since the mid-90's (previously under Signet Bank) and I've never had to call or contact them about CLIs.  While the CLIs have been sporadic, they've always been automatic.  Both my Visa Sig and World MC lines have combined CLs around $25K.

Unfortunately, there is really no pattern that can be established for individuals that have the less-than-perfect (Capital One) CC's products.  At some point, CLIs were being reviewed; however that policy changed.  However, what seems to be abused by a lot of individuals is the EO approach.  More often than not, borderline approval folks are granted a small initial limit only to contact the EO in a 2-6 month (or less than reasonable timeframe) to get a CLI, thereby making the process all counterproductive.

They don't have a problem.  People have choices when it comes to selecting a financial institution for their credit needs.  Some folks do their research others do not.  This is how Capital One manages their various CC portfolios.

[Cdnewmanpac]

Capital One has been enormously successful in the subprime credit market, so the most obvious answer is that what they do works. Why change something that is working?

I think, however, that two factors have caused Capital One to begin re-engineering their approach. First, the economic collapse of 2007/8 destroyed the credit of a huge chunk of people whose credit had previously been good. Prior to 2007, people with bad credit tended to remain people with bad credit. But since 2007, a whole group of people has been working aggressively to restore their previously good credit. Capital One's model doesn't really account for this behavior, as they've always had a wall between their products for prime and subprime borrowers. I think they have seen in the last few years that customers who have grown beyond their subprime products are not reapplying for prime capital one products. Instead, they are closing accounts and moving to other lenders. Since Capital One has always approached problems through experimentation (there are several excellent hbr articles from the early 2000s about Capital One's experimental model), I believe they are doing so again, using the Executive Office. This makes perfect sense: only someone really invested in rebuilding their credit is likely to come across and act on this information. Capital One can then divide the people who call into groups, say one that gets a small bump, one that gets a fee waived, one that gets a rewards change, one that gets a big limit increase, one that gets everything. Then, they track those customers over the next several years and see if they become worthwhile customers or default or close their accounts anyway, etc. My guess is that in several years, the response from the EO most associated with retaining desireable customers will become their new policy.
The other problem they are encountering is the rise of medical debt. Everyone is struggling with this, since defaulting on medical debt has not been shown to predict behavior in other lending circumstances. As the number of people who are subprime based solely on medical debt grows, a new model will need to be developed. Capital One's executive office may again the the vanguard for such a new approach. Or Capital One may determine that the effort to distinguish which medical debt borrowers are worthg giving higher limits to and which are not is not worth the effort. Time will tell.

But either way, the reason they don't simply reinstitute an auto-cli system is because their numbers don't support doing so yet. When they do, they will.

[FinStar]

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@Cdnewmanpac wrote:
Capital One has been enormously successful in the subprime credit market, so the most obvious answer is that what they do works. Why change something that is working?

I think, however, that two factors have caused Capital One to begin re-engineering their approach. First, the economic collapse of 2007/8 destroyed the credit of a huge chunk of people whose credit had previously been good. Prior to 2007, people with bad credit tended to remain people with bad credit. But since 2007, a whole group of people has been working aggressively to restore their previously good credit. Capital One's model doesn't really account for this behavior, as they've always had a wall between their products for prime and subprime borrowers. I think they have seen in the last few years that customers who have grown beyond their subprime products are not reapplying for prime capital one products. Instead, they are closing accounts and moving to other lenders. Since Capital One has always approached problems through experimentation (there are several excellent hbr articles from the early 2000s about Capital One's experimental model), I believe they are doing so again, using the Executive Office. This makes perfect sense: only someone really invested in rebuilding their credit is likely to come across and act on this information. Capital One can then divide the people who call into groups, say one that gets a small bump, one that gets a fee waived, one that gets a rewards change, one that gets a big limit increase, one that gets everything. Then, they track those customers over the next several years and see if they become worthwhile customers or default or close their accounts anyway, etc. My guess is that in several years, the response from the EO most associated with retaining desireable customers will become their new policy.
The other problem they are encountering is the rise of medical debt. Everyone is struggling with this, since defaulting on medical debt has not been shown to predict behavior in other lending circumstances. As the number of people who are subprime based solely on medical debt grows, a new model will need to be developed. Capital One's executive office may again the the vanguard for such a new approach. Or Capital One may determine that the effort to distinguish which medical debt borrowers are worthg giving higher limits to and which are not is not worth the effort. Time will tell.

But either way, the reason they don't simply reinstitute an auto-cli system is because their numbers don't support doing so yet. When they do, they will.

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+1

Very excellent explanation Cdnewmanpac - your analysis very much makes sense.

[Radek7752]

As indicated above, giving CLIs and large limits doesn't really fit Capital One's business model. Most customers that expect such things tend to gravitate towards more suitable lenders. Capital One serves best as a building/rebuilding lender which they seem quite content being. I keep my card around because of history and they started me off with my highest limit when I was 18 (5k). I never got a CLI over the years but oh well I guess.  

[LS2982]

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@Cdnewmanpac wrote:
Capital One has been enormously successful in the subprime credit market, so the most obvious answer is that what they do works. Why change something that is working?

I think, however, that two factors have caused Capital One to begin re-engineering their approach. First, the economic collapse of 2007/8 destroyed the credit of a huge chunk of people whose credit had previously been good. Prior to 2007, people with bad credit tended to remain people with bad credit. But since 2007, a whole group of people has been working aggressively to restore their previously good credit. Capital One's model doesn't really account for this behavior, as they've always had a wall between their products for prime and subprime borrowers. I think they have seen in the last few years that customers who have grown beyond their subprime products are not reapplying for prime capital one products. Instead, they are closing accounts and moving to other lenders. Since Capital One has always approached problems through experimentation (there are several excellent hbr articles from the early 2000s about Capital One's experimental model), I believe they are doing so again, using the Executive Office. This makes perfect sense: only someone really invested in rebuilding their credit is likely to come across and act on this information. Capital One can then divide the people who call into groups, say one that gets a small bump, one that gets a fee waived, one that gets a rewards change, one that gets a big limit increase, one that gets everything. Then, they track those customers over the next several years and see if they become worthwhile customers or default or close their accounts anyway, etc. My guess is that in several years, the response from the EO most associated with retaining desireable customers will become their new policy.
The other problem they are encountering is the rise of medical debt. Everyone is struggling with this, since defaulting on medical debt has not been shown to predict behavior in other lending circumstances. As the number of people who are subprime based solely on medical debt grows, a new model will need to be developed. Capital One's executive office may again the the vanguard for such a new approach. Or Capital One may determine that the effort to distinguish which medical debt borrowers are worthg giving higher limits to and which are not is not worth the effort. Time will tell.

But either way, the reason they don't simply reinstitute an auto-cli system is because their numbers don't support doing so yet. When they do, they will.

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Very good explanation!

[Open123]

Excellent and very informative post by Cdnewmanpac.

Captial One is going through a very risky period in their history.  On the one hand, they're on the precipice of offering prime credit services competing on equal footing with the likes of Chase, Citi, Discover, BofA, PenFed and Amex.  However, to compete on equal footing, they have to slowly reduce and/or abandon the very subprime business in which they've built their business.

The danger is twofold:  (1) abandoning what they're best at (namely, the subprime market) too quickly before they're ready to on the uber-primes such as Chase, Amex and the rest; (2) remain for too long in this transition period of balancing the prime and subprime where eventually they become ineffective at both.

Clearly, with the purchase of ING, Capital One has set its sights on the Prime market.  Given their history and how well run the company has been since inception, I wouldn't bet against them.

[indiolatino61]

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@Cdnewmanpac wrote:
Capital One has been enormously successful in the subprime credit market, so the most obvious answer is that what they do works. Why change something that is working?

I think, however, that two factors have caused Capital One to begin re-engineering their approach. First, the economic collapse of 2007/8 destroyed the credit of a huge chunk of people whose credit had previously been good. Prior to 2007, people with bad credit tended to remain people with bad credit. But since 2007, a whole group of people has been working aggressively to restore their previously good credit. Capital One's model doesn't really account for this behavior, as they've always had a wall between their products for prime and subprime borrowers. I think they have seen in the last few years that customers who have grown beyond their subprime products are not reapplying for prime capital one products. Instead, they are closing accounts and moving to other lenders. Since Capital One has always approached problems through experimentation (there are several excellent hbr articles from the early 2000s about Capital One's experimental model), I believe they are doing so again, using the Executive Office. This makes perfect sense: only someone really invested in rebuilding their credit is likely to come across and act on this information. Capital One can then divide the people who call into groups, say one that gets a small bump, one that gets a fee waived, one that gets a rewards change, one that gets a big limit increase, one that gets everything. Then, they track those customers over the next several years and see if they become worthwhile customers or default or close their accounts anyway, etc. My guess is that in several years, the response from the EO most associated with retaining desireable customers will become their new policy.
The other problem they are encountering is the rise of medical debt. Everyone is struggling with this, since defaulting on medical debt has not been shown to predict behavior in other lending circumstances. As the number of people who are subprime based solely on medical debt grows, a new model will need to be developed. Capital One's executive office may again the the vanguard for such a new approach. Or Capital One may determine that the effort to distinguish which medical debt borrowers are worthg giving higher limits to and which are not is not worth the effort. Time will tell.

But either way, the reason they don't simply reinstitute an auto-cli system is because their numbers don't support doing so yet. When they do, they will.

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Can you write my email to the Capital One Executive Office, please...lol...!

[Shogun]

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@Cdnewmanpac wrote:
Capital One has been enormously successful in the subprime credit market, so the most obvious answer is that what they do works. Why change something that is working?

I think, however, that two factors have caused Capital One to begin re-engineering their approach. First, the economic collapse of 2007/8 destroyed the credit of a huge chunk of people whose credit had previously been good. Prior to 2007, people with bad credit tended to remain people with bad credit. But since 2007, a whole group of people has been working aggressively to restore their previously good credit. Capital One's model doesn't really account for this behavior, as they've always had a wall between their products for prime and subprime borrowers. I think they have seen in the last few years that customers who have grown beyond their subprime products are not reapplying for prime capital one products. Instead, they are closing accounts and moving to other lenders. Since Capital One has always approached problems through experimentation (there are several excellent hbr articles from the early 2000s about Capital One's experimental model), I believe they are doing so again, using the Executive Office. This makes perfect sense: only someone really invested in rebuilding their credit is likely to come across and act on this information. Capital One can then divide the people who call into groups, say one that gets a small bump, one that gets a fee waived, one that gets a rewards change, one that gets a big limit increase, one that gets everything. Then, they track those customers over the next several years and see if they become worthwhile customers or default or close their accounts anyway, etc. My guess is that in several years, the response from the EO most associated with retaining desireable customers will become their new policy.
The other problem they are encountering is the rise of medical debt. Everyone is struggling with this, since defaulting on medical debt has not been shown to predict behavior in other lending circumstances. As the number of people who are subprime based solely on medical debt grows, a new model will need to be developed. Capital One's executive office may again the the vanguard for such a new approach. Or Capital One may determine that the effort to distinguish which medical debt borrowers are worthg giving higher limits to and which are not is not worth the effort. Time will tell.

But either way, the reason they don't simply reinstitute an auto-cli system is because their numbers don't support doing so yet. When they do, they will.

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Very nicely done.