High AAoAs & New Apps: Theorizing and Speculation

[CreditScholar]

This is purely a theoretical topic, but I was just considering something that may be counter-intuitive to most common sense advice given on these forums.

AAoA is often mentioned as a factor lenders take into account when deciding whether to approve an application or not, and if it's approved what CL is given. We've seen plenty of people being denied due to low AAoAs, too many recent applications, etc. The general rule of thumb seems to be the higher your AAoA, the better your chances are.

At what point (if any) does an extremely high AAoA become a deterrent under manual review? For example:

A person has an AAoA of 20 years, 3 reporting TLs and no applications during that time. He then applies for 3 more cards within 12 months, increasing his number of TLs to 6 and dropping his AAoA in half to 10 years. While an AAoA of 10 years is fantastic by most standards (and is cited as something most 'FICO High Achievers' have), as an analyst wouldn't you stop and wonder "Well he's had a profile that hasn't changed in 2 decades, and now he's applying for several new accounts? Has something happened? Is this an impending sign of potential upcoming financial problems? Is his retirement funds running low? Why add so many accounts now, after such a long period of stability?"

Any insights?

[myjourney]

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@CreditScholar wrote:

This is purely a theoretical topic, but I was just considering something that may be counter-intuitive to most common sense advice given on these forums.

AAoA is often mentioned as a factor lenders take into account when deciding whether to approve an application or not, and if it's approved what CL is given. We've seen plenty of people being denied due to low AAoAs, too many recent applications, etc. The general rule of thumb seems to be the higher your AAoA, the better your chances are.

At what point (if any) does an extremely high AAoA become a deterrent under manual review? For example:

A person has an AAoA of 20 years, 3 reporting TLs and no applications during that time. He then applies for 3 more cards within 12 months, increasing his number of TLs to 6 and dropping his AAoA in half to 10 years. While an AAoA of 10 years is fantastic by most standards (and is cited as something most 'FICO High Achievers' have), as an analyst wouldn't you stop and wonder "Well he's had a profile that hasn't changed in 2 decades, and now he's applying for several new accounts? Has something happened? Is this an impending sign of potential upcoming financial problems? Is his retirement funds running low? Why add so many accounts now, after such a long period of stability?"

Any insights?

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In theory it could look like that ...Interesting 

Especially to a senior underwriter/analyst

[Open123]

Indeed, an interesting perspective that had never occurred to me before.  If I were an analyst (assuming it wasn't instantly approved for ID reasons), I would consider which of the following has caused sudden change in behavior.

1.  Person is running low on funds - is this liquidity driven; asset erosion; impending liability.

2.  Person suddenly realizes the benefits of rewards, thereby finding a new hobby.

3.  The lure of a sign-up bonus - persuaded by banker, financial advisor, or friend to benefit from the "freebies."

Reasons #2 and #3, I'd have no concerns.  

However, for reason #1, I'd have to do some forensic analysis of his CR, spending patterns, and whatever information I'd have available before making a decision. Of course, there's nothing more telling than a tax return here, but most likely won't provide it.

[Open123]

Assuming I can't unearth anything definitive, unless he's an existing card holder, I would approve the application, but with a small CL at or about $3k.  For the next few months, I'd monitor where the person spends, what he spends on, and right down to how much he tips at a restaurant.  Furthermore, I'd track how he's paying, from where is he paying, the amount he's paying, and the frequency and timeliness.

I'd imagine that after a few months, I should have enough data to deduce the motivation for his sudden application after 20 years of stability.  Then, if everything looks copacetic, I'd approve CLIs every 6 months to a level commensurate with his spending.

[Creditaddict]

YES YES and YES... While my partner isn't old enough to have the long AA you speak of he was a Fico high Achiever and pushing the 775-800 on all 3. He also used his debit almost 100%, did have some decent lines but nothing good rewards and was pretty much scared to apply so he felt a 1 at a time approach is better.

While the first couple apps and a new car lease were not that big of a deal... the next apps began to be hit or miss depending on lender and how sensitive they were... I still do this day think if he had applied for 15 credit cards at once if planned out correctly in order of lenders I would bet money 13 of the 15 would be approved with at least 10 of them being instant.

Someone that does use credit but doesn't apply and has higher AA I think takes much harder hits then those of us who just kind of always apply and keep very active and while the argument is util. is perfect, new accounts recently, less INQ you get higher starting CL... I still tend to lean towards the average person would have more success getting approved and getting CLI over the first 6-12 months FASTER and higher then the person that waits that entire year to clear a couple INQ's

This is why people that plan out "App Sprees"  (We just saw a REALLY good one... he ended up with over $100k in under 5 days) now not that many of us can have that type of success, but he planned and knew what each creditor pulled, who was sensitive, who was more important and how to recon the ones that were not instant....

Banks want to constantly change reward programs and get you to move from Chase to Discover for your 5% spending but yet then don't want you applying for multiple cards.... They play the game and want us to play but then dont' like it when we do... looks like you are seeking credit... no im seeking the rewards you keep changing!!

Give me back my Chase Freedom PLUS with 5% on my top 6 Categories... Anyone else have that and remember that??? Id still be with Chase if they didn't take that away!

[FinStar]

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@CreditScholar wrote:

This is purely a theoretical topic, but I was just considering something that may be counter-intuitive to most common sense advice given on these forums.

AAoA is often mentioned as a factor lenders take into account when deciding whether to approve an application or not, and if it's approved what CL is given. We've seen plenty of people being denied due to low AAoAs, too many recent applications, etc. The general rule of thumb seems to be the higher your AAoA, the better your chances are.

At what point (if any) does an extremely high AAoA become a deterrent under manual review? For example:

A person has an AAoA of 20 years, 3 reporting TLs and no applications during that time. He then applies for 3 more cards within 12 months, increasing his number of TLs to 6 and dropping his AAoA in half to 10 years. While an AAoA of 10 years is fantastic by most standards (and is cited as something most 'FICO High Achievers' have), as an analyst wouldn't you stop and wonder "Well he's had a profile that hasn't changed in 2 decades, and now he's applying for several new accounts? Has something happened? Is this an impending sign of potential upcoming financial problems? Is his retirement funds running low? Why add so many accounts now, after such a long period of stability?"

Any insights?

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Some very good points indeed.

From a manual review perspective, and depending on the lender, most U/W analysts would have various tools that provide them with risk-weighted ratios, default analytics, demographic, revenue/profitability data, behavioral scoring, etc.   The more conservative the lender, the more sophisticated their software/tools and U/W team would be.  There are various key elements that ultimately result in the exception review process that would definitely come under more scrutiny.  Anywhere from a recent address change, name change, overall CR/FICO profile, income, public records, duplicate applications, existing accounts, affiliate information (negative or positive), and the list goes on.

Each lender's internal U/W policies would determine the outcome for approval or declined applications based on what triggered the manual review.  Potentially, from a risk perspective, a sudden change or unusual pattern that may point to credit overextension may make an U/W more hesitant in extending additional credit or, in conditional review, limit their exposure if all else checks out.  If a "borderline" or judgemental approval occurs, some lenders may code certain accounts with a monitoring exception for periodic portfolio risk reviews.  As lenders perform periodic account reviews, any profile changes or key indicators that could result in a potential or foreseable loss would result in immediate account closure or a CLD/balance chasing scenario.

Using your hypothetical example, a red flag may occur if any recently acquired TLs/limits appear unusually high when compared to the income provided, DTI, and CR data associated with any historical trends that do not support such spending habits or high CLs. 

Essentially, the questions you posed are some of the standard ones that would likely come into play when assessing whether an individual would present a low or high risk to that lender.

[enharu]

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@Open123 wrote:

Indeed, an interesting perspective that had never occurred to me before.  If I were an analyst (assuming it wasn't instantly approved for ID reasons), I would consider which of the following has caused sudden change in behavior.

1.  Person is running low on funds - is this liquidity driven; asset erosion; impending liability.

2.  Person suddenly realizes the benefits of rewards, thereby finding a new hobby.

3.  The lure of a sign-up bonus - persuaded by banker, financial advisor, or friend to benefit from the "freebies."

Reasons #2 and #3, I'd have no concerns.  

However, for reason #1, I'd have to do some forensic analysis of his CR, spending patterns, and whatever information I'd have available before making a decision. Of course, there's nothing more telling than a tax return here, but most likely won't provide it.

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Everyone has raised pretty good and interesting points so far.

What CS said is entirely possible, but it's hard to tell whether that person is running low on money simply through just a credit app. 

Most normal people (let's just ignore the population on this forums because we're definitely not considered as normal) do not sign up for new cards every 3-12 months. They usually get a 1-4 cards, and they pretty much stick with that card forever as long as everything is working out for them. This is the main reason why you still see people using their traditional BofA, Citi, Wells Fargo and other "not as good" cards for purchases despite the fact that there are much better alternatives for them. Some do not know about all these stuff that's going on, while some don't really care about saving 1-5% of their purchases, while some really just want a card that has good service and works.

My notion is that most people who apply for a credit card are usually tempted by the sign-up bonus (whether it's a nice 15% discount, no APR financing, etc) and then put in an application. Then there are some who wish to have all their banking stuff under 1 roof, which kinda explains why there're people going for Wells Fargo card, and then there're also those who just want to switch banks because their current ones just are not working out as well as they used to be (such as those Wamu customers who got screwed over by Chase when Wamu got bought over). 

Then, there'll be people who're desperate for credit and resort to credit card apps. Most people usually avoid this however because the high interest seems to act as a deterrent. They would usually try to seek out a home equity loan first, or a secured loan, or a personal loan of some kind, rather than to apply for a credit card as their first resort. If they do indeed apply in this order, there will be red flags all over just from the inquiries alone, whether the home equity loan was approved or declined.

My opinion is that most people who are low on money resort to credit card apps as a last resort generally, This is my take of course. I may be entirely wrong.