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Why would a credit card company proactively reduce apr on your credit card?

New Visitor

Re: Why would a credit card company proactively reduce apr on your credit card?

I am a girl lol and very much of a worrier, if there is a glitch in the universe that I can't make sense of I question it. But then again maybe I shouldn't look a gift horse in the mouth.
Message 11 of 14
Regular Contributor

Re: Why would a credit card company proactively reduce apr on your credit card?


NewyorkQueens wrote:
Thank you Glen_M. That is what is so weird about it. I have no idea why they would do that and not unsecure me. So weird.

 

Not knowing any other details about your credit history, I would guess that you have a thin file or short history, and your file came up for some kind of review at the 1-yaer mark -- you could have fallen into a 'bucket' that didn't qualify for a graduaiton yet, but they want to keep you as a customer, and the accountants have determined that offering you something like a reduced APR would make you more willing to wait until the next automated review without ditching their product/service.


Message 12 of 14
Valued Contributor

Re: Why would a credit card company proactively reduce apr on your credit card?

This is purely my opinion but it is a TINY BIT based on conversations I had with clients who were senior accountants at two huge credit banks - the types of folks who actually fund the underwriters.

 

First of all, Discover doesn't finance all credit cards themselves, they use ABS (see my post) to get investors to fund credit cards.  The APR rate offered on a card may be directly tied to the person's risk profile (not just credit score) and their risk profile internally is part of how a bank puts a specific person's specific credit card into an ABS tranch.  So at 24.99% you may be in the D class tranch (subprime but not the worst) for example. 

 

At some point in a person's credit life, their risk profile may change enough that a bank sees a profit by including them in a different ABS tranch.  Tranches are complex beasts, with individual credit lines sometimes being stuck in one tranch for 5 years but in other cases they may be "sold" to a different tranch to make room for someone else.  Computers and AI algorithms calculate this, not humans.

 

If you're given a lower APR, it's feasible it's because the bank wants to bounce that card from a D tranch to a B tranch (better) for whatever reason.  Maybe it's because a bunch of B tranch card holders closed their accounts and investors want returns.  Maybe it's because your risk profile is desirable for a different tranch.  We will never know, customer service agents will look at you like you're an alien if you bring it up, and even the EO can't help you because the EO doesn't manage the ABS corporation subsidiary!

 

When you sign up for credit, you are a customer of the credit bank.  The credit bank needs funds to finance your credit card, so they assign you to a subsidiary investment bank that markets your profile to investors with a bunch of other creditors.  You have absolutely zero relationship with the investment bank so you can't call and ask about it.

 

But that's my take on APR reductions and why some folks get it, some don't, and some folks get it automatically without asking.

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Message 13 of 14
New Visitor

Re: Why would a credit card company proactively reduce apr on your credit card?

Thank you everyone for your answers. There is a lot more to changing apr than I was aware of and way more to discover than I thought.
Message 14 of 14