Why denials instead of ridiculously low SLs?

[Anonymous]

Just curious why more CC companies don't give guys with "fair" credit scores ridiculously low SLs rather than outright denials?  I get it when we're talkin scores in the "poor" range... but if someone is in the low 600's it would seem to me that the CC company giving them a $100 SL rather than a straight up denial would sort of be a win-win.  What's the worst case...they don't pay their $100 maxed out bill?  Conversely, a good portion of people would be happy to get the opportunity and use the card responsibly, probably growing their CL over time and with these additional customers of course the CC company makes more money with more swipes and such.

I hear about $250-$500 SLs pretty often for people with lower scores, but not usually any lower than that and I just feel like an opportunity is there to give more people with lower "fair" scores a shot without taking on too much risk if an extremely low SL is administered.

[longtimelurker]

At least some people wouldn't use a cc with a $100 CL so I am not sure the issuer would gain anything.   And there is some cost to them having a new customer, even if it is small (creating the card, mailing it out and possibly mailing statements and processing payments).   Just easier to reject I guess, and expect users to reapply when scores are better.  And if not, not a great loss

[NRB525]

This is why people are better off paying Credit One and First Premier for their credit products. $100 is not usable. Even secured cards start at $250.

[Anonymous]

The simple answer, money.

The lender has to keep books, and has shareholders and parent companies and all kinds of other eyes looking at their business model.

Many higher-tier lenders choose not to have to justify/explain taking risks on lower-scored applicants, so they just outright deny them.  While most of the system is computerized/automated, they also have some costs with account administration and reporting, which outweigh the potential benefit to them from  having a vast number of tiny accounts open.

Other lenders are willing to work with lower-scored applicants, and pretty much all of those are doing so with a business model which provides them increased interest, fees, and other upside potential to outweigh the risk in their portfolio.  But even these guys aren't going to mess with tiny limit cards - they all have $250-300 as their baseline starting limits.

I totally get your point - what's the potential downside/loss? - but these guys are also concerened with upside potential too, and if they can't feasibly make money off a program, they aren't going to institute it.  Nothing personal about it - they aren't concerned with giving chances to people who may deserve a second start - it's strictly a numbers game.

[jamesdwi]

because it may sooth the new card holder for a short time untill the reality sinks in, I have this $100 CL card,  I hope they give me a CLI soon, okay things go great and the card company gives you a  25% CLI, that is a pretty good CLI in the industry... but guess what your CL is still just $125. Keep using the card, the company see's wow what a good borrower, and  after another year gives you a 100% CLI, congradulations you now have a $250 CL. after  a year.  You as the card holder have since applied for and recieved other cards with 10x the limit of the low limit card. Now the customer rarely uses the low limit card, yet we still have mail out bills, card agreement updates, at a loss to the company.  

If the low limit card company just denied the card, the customer may of waited for 6 months or perhaps a year, and then got a approved for $2000 limit and been way ahead.

I have been burdened with low limit cards, my Target Store card has a lovely $200 limit. I no longer shop at target, and this card is a large part of why I don't shop there any longer.

[RonM21]

My thought is the same, which is that it just may not be cost effective for them to do this.

[core]

If they give out approvals then they have to deal with phone calls from users of this site asking for CLIs every few months!  Best just to deny outright and not have to deal with nuisance requests, if the customer isn't going to be all that profitable anyway.

[Anonymous]

I think it's difficult to gauge whether or not the customer is going to be any less profitable with a $100 CL rather than a $250-$500 CL.  I look at it as more of an investment on the part of the creditor.  If in 6 months you're willing to bump them up from $100 to $250-$500 (where you would have started them if their score was 30 points higher, say) you're really only investing in 6 months where they can get their score up.  Instead the creditor runs the risk of the customer applying for a different card 6 months from now when their scores permit them more opportunity.

I get what you are all saying about profit, risk and reward and obviously creditors have looked into this and/or thought it through at this point... just from my perspective to me it seems like creditors are leaving some opportunity on the table in many cases with customers that could potentially be very profitable for them in 6 months to a year from now.

[Anonymous]

No. This isn't why First Premier or Credit One are worthwhile products. They're extremely overpriced. You're better off sucking it up and saving up a $500 secured card deposit. And if you can't save up a $500 deposit, you really aren't ready to handle credit responsibly.

[Samac]

Heh, they make plenty of money as is. Why deal with incredibly low limits? Some cards might give $250 starting limits, but I would say most don't. (Excluding store cards).