topic No Logic regarding credit application approvals/denials in Credit Cards

No Logic regarding credit application approvals/denials

Anonymous — Mon, 01 Apr 2013 12:28:49 GMT

I don't care what anybody says, I'm thinking that there's really no sound logic behind credit app approvals or dentials. A couple of things that happened to me makes me think that many of these credit granters are nuts and really lack logic.

First example: recently I applied for a PayPal Extras MasterCard. I submitted the app, then got the message that I should call to finish the app. So I called, They approved me for a $500 limit.

And that $500 limit was fine in my book because I went on a huge app spree during the beginning/middle of March as well as a mini-spree in mid-February resulting in many inquiries and many new credit accounts.

Turns out, I was deinied for the Extras card! They instead approved me for PayPal Smart Connect.

Fine, whatever.

But what sense does that make? If they're going to approve me for a $500 line of credit with PayPal Smart Connect, then why the hell deny me for the credit card???? Both accounts are risk based. I can just as easily spend the PayPal Smart Connect credit and never pay it back just as easily as the credit card.

So what gives with that logic?

Then there's Capital One. They approved me back at the beginning of March for a SECURED credit card - I paid $46 security deposit to get a $300 limit.

Last week, I got a Cap One checking account and applied for an overdraft credit account. They pulled my Equifax report and approved me for a $500 line of credit - which I can withdraw my debit card and never pay back. I could charge stuff with my debit card using the funds in that account and never pay it back...

...but they wouldn't approve me for a unsecured credit card??? Again, credit card is risk based and this $500 overdraft line of credit is risked based, too. So what gives with that? Where's the logic???

Now I'm not griping about not getting what I want - it seems like it, but I'm not. I'm thrilled to have gotten what I have gotten thus far and am very grateful. I'm just not understanding the logic of PayPal/GECRB not giving me a credit card but finding it okay to give me $500 via Smart Connect and I'm just not understanding the logic of Cap One offering me a secured card when I'm not good enough for an unsecured one, but then turning around and giving me a $500 unsecured line of credit no questions asked via their banking product???

Re: No Logic regarding credit application approvals/denials

Anonymous — Mon, 01 Apr 2013 12:48:39 GMT

It is my understanding that with a checking account LOC they can freeze your bank account if you go negative and refuse to pay the balance. Not sure if the same thing applies for their unsecured cards but a lot of times they aren't linked to assets like CU CCs are so they are riskier.

I had my checking account frozen after I filed BK on a CU credit card in 2003. I had to reaffirm the debt and pay the outstanding balance on the card before they would unfreeze my accounts. I tried to reapply for another card through them a couple of times because they closed my CC account but they wouldn't approve so I gave up. I have a checking with debit card and savings with them and that is it. Haven't bounced a check or gone negative in over a decade and they still won't budge. I'm considering applying one last time in Sept when the BK 7 is finally deleted.

All I know is that CCCs have different products for different credit tiers and if you don't meet the credit requirements for the product, they will either deny you or downgrade you. I'm still not credit worthy enough for the CSP but I have a Freedom. Most of the rewards cards require a higher level of creditworthiness. When starting the rebuild, most of what is available are cards with no rewards and high fees but as your score improves, you will receive better offers. Just give it time, garden, and doors will start to open up for you. Good luck.

Re: No Logic regarding credit application approvals/denials

Anonymous — Mon, 01 Apr 2013 12:57:31 GMT

Yes, I am sure that there are different criteria for different products, some of which might have a reasonable justification and others are just the way they are. But to mind the whole credit scoring process is a little strange. My favorite example, the much discussed PIF before the statement cuts.

Outside of forums like this, financially savvy and responsible people will PIF before the due date, getting any rewards and some interest-free float. My guess is that the majority of such people would be amazed (and annoyed) to discover that their score is lower compared to people who pay before the statement cuts (foregoing part of the float). There is no reason why an ordinary person would suspect this, and to me it still makes little sense. Personally I would think that signs of increasing financial distress would be things like paying the minimum on several cards (although people might make the decision to do this for other reasons), but that is not reported on the CRs, so the lender would have to store history to do this.

So since the data coming in is easily gamed, I am not too surprised that approval/decline/CL decisions also seem odd.

Re: No Logic regarding credit application approvals/denials

Anonymous — Mon, 01 Apr 2013 12:59:17 GMT

I know with the Cap One line of credit on their checking account, they won't freeze your account if you go into the negative - the line of credit is there just for that reason. If you go into the negative (have to utilize the overdraft credit), you can go down the hole right up to the max (in my case $500) and then you must pay it back with interest either by the end of the month (if less than 100) or in payments if more than $100 over time. But still, the point being, anybody could abuse this and leave them holding the bag.

But sure, different credit products have different standards for approval, but my point is regardless of those standards, the result is the same:

you're giving $500 in risk based credit on the one hand, but denying the same amount of risk based credit on the other (for another product). That's my point. What's the difference between approving somebody for PayPal Smart Connect but denying them a credit card? The standards they have for approval might be different between the two products, sure, but the result is the same: credit is given to a consumer. Just seems silly to me and doesn't make sense.

Re: No Logic regarding credit application approvals/denials

Anonymous — Mon, 01 Apr 2013 13:24:47 GMT

But I do believe that over time, if you don't pay the LOC, they will freeze the assets in your bank account until you pay. This doesn't usually happen with unsecured credit unless it is a credit union. The overdraft LOC is secured by your assets such that if they freeze your income being direct deposited, they have a better chance of getting their money back.

It is easier to get approved for a mortgage than a Chase Freedom (I can attest to that) because the mortgage is secured by your house. Same with auto loans as your car is the asset. With unsecured cards, banks usually get nothing if you decide not to pay and if the card came with rewards, then they lose even more money. This is why spotless good revolving payment history is so important. If you can show them you paid X card on time for 3 years, and never went over the limit, lenders will feel you are less riskier. With auto loans, previous auto loan history goes a long way in showing lenders you will pay the auto loan on time and the more history you have, the lower your interest rate.

The consumer protection laws strip CCCs of some of their rights to collect a unsecured debt if you default. You have to remember, you are the minority. Most people with the same score as you are not as willing to pay. So rather than let you and a bunch of other people with your same score in, they decide to block everyone in that score range from better products because if they let everybody in and they would have to or it would be possible discrimination, you would be paying on time while 90% of everyone else they let in with your same scores will be defaulting and the bank would lose a lot of money.

Re: No Logic regarding credit application approvals/denials

Anonymous — Mon, 01 Apr 2013 13:55:10 GMT

Some things just make no sence.

Last week I request a cli on my NFCU Cash rewards for 500, did not get it, so 2 days later ask for 200 and get it, so I wait 2 more days and ask for another 300 and get it.

2 days later ask for a refi on my car for 9600 and get it, the same night I ask for another 500 on my cc and get it.

So why was I turned down for the first 500 request, if in a weeks time I get a 9600 refi and 1000 cli on card.

All of my info on reports were exactly the same each day.

I made out better but to be denied 500, but in the same week given 1000. I scratch my head while jumping for joy. LOL

Re: No Logic regarding credit application approvals/denials

youngandcreditwrthy — Mon, 01 Apr 2013 13:57:34 GMT

The difference between the Paypal Smart and mastercrd version is that the Mastercard version is more risky for them to grant to a higher risk consumer. The fact that you can use it in more places makes it easier to lose control of spend and not pay. Also, the Smart Connect has a higher interest rate I believe-meaning they make up for the higher risk by am increased apr.

Additionally, the terms&conditions of your $500 loc on your checking have MUCH more punitive terms and conditions in the even of default than you moderately secured credit card...

A lot of times you will get approved, but the lender makes up for approving a subprime applicant by making aprs higher and having higher fees/more restrictive terms in the event of default.

I definately agree with you, but many times a lender will approve a subprime applicant and just make the terms worse to compensate for the "credit risk"

Think of this:
You know how some CC apps say you may be approved with 10.99, 16.99, or 21.99.

The higher your rate, the more risky their extension of credit is to you..

Again, I agree 100% with you. Many lenders also have different standards... A 600 FICO will get you a low limit GECRB store card
However, a 600 FICO will NOT get you an Amex lol.
The most bogus thing to me is when creditors put sill denial reasons.....
I got "limit used on revolving accts is too high"
Really?! 13% util is too high?!?! NO! Wrong!! Stingy ba st ards.

Re: No Logic regarding credit application approvals/denials

Anonymous — Mon, 01 Apr 2013 14:19:16 GMT

You know, the funny thing is this regarding the PayPal Smart Connect thing:

I also applied for and got a PayPal Business Debit MasterCard.

So I'm going to link the Smart Connect credit with the Debit card and voila I have a "credit card" - and one that gives rewards/cash back.

That's why it's so silly. I would have preferred a small limit on a new PayPal Extras MasterCard but like I said I'm happy with the PayPal Smart Connect situation, too.

But I'm glad some people are hearing this and realize that some stuff the credit grantors do make little sense sometimes LOL

_____________________________________-

Different topic, but I'm a member of the Non Commissioned Officers Association so I decided to signup with PenFed yesterday trying to position myself for a PenFed credit card. After reading all the stories of people who have been denied and approved, that's another thing that has got me thinking about the "logic" of the approval/denial process.

PenFed is conservative, yes, but I see people around here with 1 derog on file, oldest account is less than a year and they get a PenFed card while another person with a shiny FICO score, aged accounts and no derogs get declined for a card because of "pyramiding" LOL - which is perhaps the dumbest thing I've ever heard when it comes to a reason as to why a credit denial is issued...

By the way: I curse you Yahoo! for tanking your stock today so far...could we please get back up to $23.75 sometime today?!?

Re: No Logic regarding credit application approvals/denials

navigatethis12 — Mon, 01 Apr 2013 14:26:28 GMT

How is this not logical? The PayPal connect thing can only be used on PayPal, not anywhere else. General Electric has nothing to do with the PayPal debit card so it's not like they made up that account to be used with the debit card.

How soon after you applied for unsecured did you apply for the overdraft line? If it was a few months, maybe the history you have with them would have gotten you the unsecured this time.

Re: No Logic regarding credit application approvals/denials

Anonymous — Mon, 01 Apr 2013 14:35:59 GMT

It's not exactly true that the PayPal Connect credit (offered by GECRB) can only be used in PayPal. You can use it anywhere PayPal is accepted (like Walmart, A&F, eBay purchases)...and because it can be linked to their MasterCard debit card, the credit can be used anywhere MasterCard is accepted.

So like I said, offering me Smart Connect instead of the Extra card seems silly to me. What would the difference have been, really, if they offered me the Extras card with $500 vs. the Smart Connect with the same limit??

Um, I got the Capital One secured card ($46 deposit for 300 credit) at the beginning of March this year and the overdraft line of credit for $500 at the end of March this year.

In fact, Capital One pulled my Equifax (showing no less than 16 inquries...all 45 days old or less and several new accounts) and approved me for the $500 line of credit a day after the PayPal fiasco.

Re: No Logic regarding credit application approvals/denials

navigatethis12 — Mon, 01 Apr 2013 14:53:08 GMT

As I said, General Electric issued the the PayPal line of credit and the Bancorp Bank issued you the debit card. Two completely different companies offering two completely different products. They probably did not have in mind people would use it as a backup for the debit card when they first came up with the idea of it.

I don't know abut Capital One. Perhaps they see the overdraft as less risky because most people wouldn't use it as a substitute for a credit card.

Re: No Logic regarding credit application approvals/denials

Anonymous — Mon, 01 Apr 2013 18:02:31 GMT

+1, if I had an overdraft line of credit, I would never use it purposely. It would have to be a mistake on my part to use it. I don't have overdraft protection on my checking account...never needed it.

If you plan to apply for a mortgage, I would highly recommend not using it. Mortgage underwriters consider use of an overdraft line of credit an overextension of your means. They see it in the same way they see a bounced check and there have been denials on the mortgage board for NSFs or use of overdraft protection within 60 days of applying for a mortgage as they look at all your bank statements. So I would try not to use it all. And definitely don't use it like a credit card by paying extra bills etc. you don't have the funds for.

Does the Paypal Extras come with rewards? I still don't fully understand how the Smart Connect is different.

As your score increases you will get less inconsistencies like this when applying for credit.

Re: No Logic regarding credit application approvals/denials

Anonymous — Mon, 01 Apr 2013 18:12:56 GMT

Different banks offered you different products, thus the differences.

Also, different products in the SAME company have different features (which means different costs to maintain for the CC company). A card that costs a lot for the company to maintain, would of course preferably be reserved for customers who are least likely to default on them. If they "suspect" you have a higher than normal chance of defaulting, they'll just throw the cheapest product at you to minimize whatever money they're losing.

If they think you're going to default, they'll not offer you anything.

if they think you have a slightly higher chance than normal of defaulting, you get a cheap(er) product and/or higher APR/fees so they can "milk" you for whatever it's worth and they also minimize their losses in the worst case scenario if you default.

if you are in "norm," you get an average product in line with what other competitors offer.

if you are flagged as low risk, they try to retain you with lots of benefits (which in turn means more cost to the CC company), and they still try to make money through other areas such as swipe fees.

There's a logic behind this. It's called risk management.

There's a reason why people in risk and acturial are paid so well in the banking, finance and insurance industries.