@Anonymous wrote:
Very interesting read ABCD2199! With this logic of wanting to keep people around to help raise averages, wouldn't it make sense though to up limits for them? I would think most people would go elsewhere with a better limit. I knew that you could get "stuck" with CapOne if you apply with low scores, but I can't imagine that my CL is maxed out at $850! I don't even want anything crazy, just one regular credit card that is over $1000! And I can't wait to close my credit one after closing on the house. All of my store cards are over $1000 (actually 3/4 are over $2000) and used very responsibly. I am sure that I would get higher limits with a new card, but need to wait a few months before I can do that. However, AMEX BCE and Discover IT are definitely in my sights! I am certain to get higher limits with them (at least after my first CLI) and they also give cash back, so what is the incentive to keep my CapOne card? Other than it being my oldest card. Also, not sure if it makes a difference but it was upgraded from Platinum to QS1 over the summer.
They can't up limits so easily because there's limited funds in each tranch. So if they up your limit to $10,000 you "deserve", then 50 other folks don't get their $200 starting limits. You make a lot more money if 43 out of 50 people carry balances on $200 limits than if you have one guy with a $10,000 limit swipe a pack of gum monthly.
The incentive to keep the Capital One card is threefold:
- It's most rebuilders' oldest tradeline, sometimes by a large margin.
- There's an ongoing myth that will never die that closing a credit card hurts your score.
- They give out just enough tiny auto CLIs to give people hope/pause that there is more in store.
I can't publicize which lenders I've consulted with (for another 6 years) but I've consulted with two well known credit card lenders -- not on financial matters. But I've befriended a few folks in underwriting and they've told me the same thing: subprime borrowers who become prime FICO holders are potentially more profitable for a bank than brand new prime FICO customers, because almost all banks today who cater to subprime borrowers also sell ABS to investors.
You absolutely NEED some folks with 700 FICO scores in the tranch caterring to folks with 500 FICO scores, because it greatly offsets the risk calculation. Investors won't invest in a tranch with a risk return of -3.5% annuallized, but if you throw in 5% of the borrowers as +20% annualized risk return, now that -3.5% return investment is +0.5%. You and I can't even seen the math in reality (other than public disclosures, which are rare and hard for most to read).
I read ALL asset back securities reports when they're released because I like investing in those issues. I made a total killing on SLABS (student loans asset backed securities) because I saw so many "friends" with loan issues a decade ago, so I decided to jump in and the returns were absolutely stunning (no BK, no chance of avoidance, they'll get it eventually). Now I'd like to get into credit card ABS in the future after the next major market correction plows out borderline defaulters and we can start anew. Right now, I think ABS are going to be pummeled when the market corrects again.
