Why do CCCs "balance chase?" What's the point?

[Anonymous]

I understand that if someone's profile becomes increasingly risky (introduction of late payments, for example) that a credit card company may decide to lower their limit as to reduce risk.

My question is, why do they sometimes "balance chase" rather than just CLD?  Perhaps the answer to this is extremely obvious and I'm just overthinking it, but I'm not seeing the benefit from the perspective of the CCC from "balance chasing" rather than just a flat out CLD.  

For example, someone has a $3500 limit on card with a $2000 balance.  They receive a CLD to $2000.  Next month they pay their balance down to $1600 and a CLD follows to $1600.  Balance then paid down to $1000, CLD to $1000, etc.  

Why not just CLD the account in one shot to $1000 or $500 or whatever?  I don't see the benefit of balance chasing rather than just a straight up one-time CLD.

Either way, the card holder is going to be at maxed out utilization on the card.  Perhaps creditors have found that balance chasing results in a higher chance of the debt being paid off?  Maybe they feel that gives the card holder a bit of hope that the limit won't be lowered any further if they make large prompt payments, where if they CLD all in one shot the card holder may see the account as a lost cause and stop paying all together?

[tcbofade]

My only thought is that they don't want you using their card any longer, but if you owe $2300 and the lower your limit to $2000, you would then be "over the limit" and it would create an unfair, dishonest ding on your credit report that you could probably fight and win.

...so it's probably simpler to reduce your credit line bit by bit as you pay it off...

[Anonymous]

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@tcbofadeMy only thought is that they don't want you using their card any longer, but if you owe $2300 and the lower your limit to $2000, you would then be "over the limit" and it would create an unfair, dishonest ding on your credit report that you could probably fight and win.

...so it's probably simpler to reduce your credit line bit by bit as you pay it off...

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But anything > 100% is still viewed as maxed out, so even if they owe $2300 on a $2000 limit and they're at 115% utilization they wouldn't experience any greater score ding over the balance-chased amount.

[Gregory1776]

It would force you to pay the minimum which would be whatever your over the limit is, and i feel like people would win lawsuits, because courts suck. 

I’d be on the banks side, in this case. Nobody is making you borrow the money, use it responsibly and pay it back. 

[tcbofade]

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@Gregory1776 wrote:

It would force you to pay the minimum which would be whatever your over the limit is, and i feel like people would win lawsuits, because courts suck. 

I’d be on the banks side, in this case. Nobody is making you borrow the money, use it responsibly and pay it back. 

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I can see both sides of that... I think that you have a valid point about raising the minimum payment...wouldn't that amount to a breech of contract?

"Responsibly" varies greatly from one lender to another.  If CC X is offering me a 0% BT offer, I'm going to take advantage of it.  If they later CLD me because that's the only use the card ever sees, so what? 

[Kforce]

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@Anonymous wrote:
Perhaps creditors have found that balance chasing results in a higher chance of the debt being paid off?  Maybe they feel that gives the card holder a bit of hope that the limit won't be lowered any further if they make large prompt payments. If they CLD all in one shot the card holder may see the account as a lost cause and stop paying all together.

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I believe you hit the nail on the head.

[Anonymous]

Does a CCC have to raise your minimum payment to the amount you're over a limit?

Say you owe $2000 on a card that has a $100/mo minimum payment and they CLD you to $500.  Can't they just leave your minimum payment at $100, even though at that point you're $1500 over your limit?  No doubt they can't increase your minimum payment to $1500.

[NRB525]

BBS your initial scenarios are all wrong. 

Balance Chasing does not involve lowering a credit limit exactly to where the balance is, that is nearly impossible to pull off, and does not leave room for the next month interest charges that will show on the statement. So in the $3,500 limit, $2,000 Balance, the CLD might be to $2,200. 

The main reason for for this is if the bank forced the card holder into an over limit situation, that would expose the bank to a lawsuit. The cardholder was within terms, the bank broke the agreement. 

This is done when the bank gets nervous at the amount of debt the cardholder has, and wants to reduce risk. By lowering the CL, the cardholder has borrowings to pay back, within terms, but the bank has capped their remaining risk, there is no more borrowing possible. If the bank has a lower target for what the cardholder will be allowed, the CL is periodically stepped down by several hundred as the balance comes down. When the cardholder reaches a CL the bank feels comfortable with, the bank will stop doing CLD. The bank does not announce this to the cardholder, the CLD just stop showing up. 

If the bank does not want the cardholder to ever have any more possible borrowing, the bank may outright close the account. In my experience, the “credit line” is still listed, but because the account is closed, no more borrowing is possible, ever. The bank has effectively CLD to zero without violating the terms of an open card. 

I know, because all those scenarios happened on several of my cards after the financial crisis. 

[pip3man]

When I worked at Citi, it was a matter of policy that they could never decrease or balance chase a cardholder’s limit to exactly or under their balance. I’ve forgotten the exact figure but it was capped around 115% of the balance if I remember correctly. For instance, say your credit limit is $4000 and you owe $2800, the max they could decrease your limit is $3220. This was a risk management strategy and to stay compliant.

[Anonymous]

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@tcbofade wrote:

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@Gregory1776 wrote:

It would force you to pay the minimum which would be whatever your over the limit is, and i feel like people would win lawsuits, because courts suck. 

I’d be on the banks side, in this case. Nobody is making you borrow the money, use it responsibly and pay it back. 

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@tcbofade wrote:

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@Gregory1776 wrote:

It would force you to pay the minimum which would be whatever your over the limit is, and i feel like people would win lawsuits, because courts suck. 

I’d be on the banks side, in this case. Nobody is making you borrow the money, use it responsibly and pay it back. 

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I can see both sides of that... I think that you have a valid point about raising the minimum payment...wouldn't that amount to a breech of contract?

"Responsibly" varies greatly from one lender to another.  If CC X is offering me a 0% BT offer, I'm going to take advantage of it.  If they later CLD me because that's the only use the card ever sees, so what? 

I Agree with that statement, I think it dumb on CC issuer to CLD if you are making above and a large monthly payments. It would make sense if you only just making minimum payments. I been using Chase/Amazon prime CC heavily and one time "Maxed" out their card. Never got a CLD. I been reading this fourms and noticed people getting CLD are those who just run up the balance and just pay the minimum. Balance transfers are exception. If the Card holder dont pay up by the end of Balance transfer promo then it the Card holder's fault not the bank.  I think in this fourms Fear of "CLD" is baseless.