Classic Risk Score Review caused Adverse Action

[creativeZero7]

Hello all. I have a strange issue I'm trying to wrap my head around. I have two Elan Visa accounts. A personal Visa Signature card with a 12k limit and a 7k balance. I've carried a balance for years but have maintained the debt by paying 4x the payment amount. It has not always been this high, but for the past couple of months, yes. It has been around 7k consistently. Never late paying and have had the account for over six years now.

The second account is a Business Visa with a 8k limit and generally a balance of 3.5-4k carried. This account I pay 2-3x the minimum payment. Also open for over six years. Never late, always paid one day after the statement is cut. I've been paying a good amount of interest for years, and I would assume they would be happy to have it as such.

I am a business owner and struggling at the moment. I am not happy about it, but I've been utilizing credit and managing cash flow best I can to make payroll and so on. I do have a plan to pay both personal and business balances in full in the new year, finally; but this letter is concerning. The focus of the review is my business card account. I am concerned as I feel my personal account is not far off. I am trying to prepare myself for a discussion with the bank.

In this letter they stated four reasons for an interest rate increase.

1. Proportion of balances to credit limits is too high (understood)
2. Too few accounts currently paid as agreed (always paid as agreed..both accounts)
3. Lack of recent installment loan information (I don't have any installment loans)
4. Too many accounts with balances (just these two, but understood if so. UTI is high.)

My credit is also fully locked so at first I thought, perhaps they saw some misleading information on an installment account, but I would have been alerted if credit was applied for. It seems overall the balances are the issue, which I understand. However, I've maintained balances for years and managed it. Purely from a risk standpoint, I don't see how the relationship would require change on their end. Especially since they just increased my personal card credit limit last spring.

Also, I am a AU of my wife's AMEX account which has a high limit, 30k, and has never had a balance. It's paid in full each month and shows on my report.

I have written them to ask for clarification and when they respond, I am planning to call in to discuss. To me it seems as though they are just telling me my rate will increase upon review, but the Adverse Action title is concerning.

I would love to hear any thoughts? Should I be asking any specific questions in discussion with the bank?

Thanks so much.

[Anonymous]

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@creativeZero7 wrote:

Hello all. I have a strange issue I'm trying to wrap my head around. I have two Elan Visa accounts. A personal Visa Signature card with a 12k limit and a 7k balance. I've carried a balance for years but have maintained the debt by paying 4x the payment amount. It has not always been this high, but for the past couple of months, yes. It has been around 7k consistently. Never late paying and have had the account for over six years now.

The second account is a Business Visa with a 8k limit and generally a balance of 3.5-4k carried. This account I pay 2-3x the minimum payment. Also open for over six years. Never late, always paid one day after the statement is cut. I've been paying a good amount of interest for years, and I would assume they would be happy to have it as such.

I am a business owner and struggling at the moment. I am not happy about it, but I've been utilizing credit and managing cash flow best I can to make payroll and so on. I do have a plan to pay both personal and business balances in full in the new year, finally; but this letter is concerning. The focus of the review is my business card account. I am concerned as I feel my personal account is not far off. I am trying to prepare myself for a discussion with the bank.

In this letter they stated four reasons for an interest rate increase.

1. Proportion of balances to credit limits is too high (understood)
2. Too few accounts currently paid as agreed (always paid as agreed..both accounts)
3. Lack of recent installment loan information (I don't have any installment loans)
4. Too many accounts with balances (just these two, but understood if so. UTI is high.)

My credit is also fully locked so at first I thought, perhaps they saw some misleading information on an installment account, but I would have been alerted if credit was applied for. It seems overall the balances are the issue, which I understand. However, I've maintained balances for years and managed it. Purely from a risk standpoint, I don't see how the relationship would require change on their end. Especially since they just increased my personal card credit limit last spring.

Also, I am a AU of my wife's AMEX account which has a high limit, 30k, and has never had a balance. It's paid in full each month and shows on my report.

I have written them to ask for clarification and when they respond, I am planning to call in to discuss. To me it seems as though they are just telling me my rate will increase upon review, but the Adverse Action title is concerning.

I would love to hear any thoughts? Should I be asking any specific questions in discussion with the bank?

Thanks so much.

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First, I think you need to understand two things:

1.  An adverse action is any negative action taken by a lender, employer, insurer, etc.  In this instance it appears your bank is imposing a penalty interest rate because you've been carrying a balance for an extended period.

2.  The law requires the lender to provide you with a Notice of Adverse Action (the letter you received).  That notice must contain a minimum of four factors or reasons for the adverse action, ranked by order of importance.  So occasionally a notice will contain a factor that is not relevant to a particular situation but is included to comply with the requirement.

[creativeZero7]

Thanks for your reply. That is very helpful. The non-relevant reasoning they've most likely listed to comply is odd, and doesn't seem fair to use against customers. Hopefully that's not a common practice.

[Anonymous]

Those letters are usually computer-generated based on reason codes provided by the credit reporting agency so the lender has some measure of plausible deniability for the cited reasons.  You letter should state which credit agency was used by your lender.

[Anonymous]

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@creativeZero7 wrote:

I have two Elan Visa accounts....

In this letter they stated four reasons for an interest rate increase.

1. Proportion of balances to credit limits is too high (understood)
2. Too few accounts currently paid as agreed (always paid as agreed..both accounts)
3. Lack of recent installment loan information (I don't have any installment loans)
4. Too many accounts with balances (just these two, but understood if so. UTI is high.)

---

Are the two Elan cards your only cards?  If so, do you have any other accounts?  We may be able to help you better if you list all the accounts on your report.  Indicate whether the account is closed or open, revolving or installment, whether there have ever been late payments on the account, current balance and credit limit, and whether the account is in your name or is an AU.

Bear in mind that the bank is making this decision based on all your accounts, not just the ones you have with them. 

If the total number of accounts that you have (especially open accounts) is small, that may well explain reason #2.  Here is an excerpt from an article at Experian:

The risk factor "too few accounts currently paid as agreed" does not necessarily mean there are late payments or unpaid accounts appearing on your credit report. It can also mean that you simply have too few accounts in your credit history to determine lending risk.

https://www.experian.com/blogs/ask-experian/the-meaning-of-too-few-accounts-paid-as-agreed-2/

Regarding reason #3, if you have no open installment loans, then you have no loans recently reporting information to the credit bureau, and thus there is a "lack of recent installment loan information."

Finally, bear in mind that the AA may not be triggered by something that you have been doing differently.  The bank may be readjusting its tolerance for risk due to issues with the economy, e.g. the recent stock market dive, etc.  People here on the forum have posted articles about Discover and Cap One tightening their standards and implementing AA against customers due to their assessment of economic indicators.

[Anonymous]

PS.  As you describe your history, there is another risk factor that is doubtless playing into their decision.  And that is that you have been carrying a balance on both cards for a long time.  People who do this have been proven to be at high risk of defaulting on their debts, even if the person has (so far) never missed a payment.   When I say "high risk" I mean high compared to people who always (or usually) pay their statement balance in full.

People who almost always carry balances on most cards are called Revolvers.  People who almost never carry balances on any cards (but rather pay them in full) are called Transactors.  All consumers fall on a spectrum of being a Revolver (at one end) to being a Transactor (at the other).

Even though this risk factor is not listed in the four reasons given, I am guessing that it is either #1 or #2 in what is influencing their decision.  I'd suggest you mentally insert it just after reason #1 for a total of five reasons.

    Proportion of balances to credit limits is too high

    Consumer has been a Revolver on most cards for a long time.
    Too few accounts currently paid as agreed
    Lack of recent installment loan information
    Too many accounts with balances

[creativeZero7]

Thanks for replying.

Yes, those two cards are my only cards and have been since opened.

• Personal Visa Signature. 12k limit. 7k current balance.
• Business Visa 7.5k limit. 4k current balance.

Never late. Nothing bad, ever. I pay the day after my statement cuts 2-3x min on the business card, and 3-4x min on the personal card.

The only other account I am associated with is my wife's AMEX as an AU. That account is always paid in full.

[creativeZero7]

That makes a lot of sense and seems they're adjusting to the "potential" risk I pose. Thanks for sharing that

[CreditInspired]

Hi OP

As you note, this is all good advice and I even learned a few things from the responses.

You made two VIP statements: you say that you thought lenders would be happy to get paid as much interest as you have paid over the years and you also commented that you are struggling at the moment. These are the risks the lenders are seeing too.

I have a question, especially since they are going to increase your interest. Is your DW AmX card a 0% interest card or a much lower interest card? If yes, you could consider transferring the balances to it. This way, you could start making much larger payments on the lower interest card, which payments would go more toward principal. Because right now, I’m thinking that your 2-3X the minimum payment is all going toward the interest.

Also, IMHO, the good news is you were given advance notice of how they’re feeling instead of just arbitrarily shutting your cards down. I only mention this because so many MyFICO members have complained about not even getting a heads-up.

GL2U

[RonM21]

OP, when it is all said and done, I hope this works out for you for the better! When reading all of the other replies, a lot of things stood out with great info. To me, if you only have those two cards, an AU on anther, no installment loans, and the utilization where it is, it makes me curious also about where your scores stand. I don't believe you mentioned those, or I missed it.

But as was stated earlier, they would be looking at your whole credit picture, and it seems that it would mainly show high utilization. I'm also saying this, assuming that that aren't any other past negatives on your reports.