Managing credit limits effectively is vital for maintaining a profitable and resilient credit card portfolio. By adopting a proactive credit limit management approach, financial institutions can significantly improve customer satisfaction and increase revenue.
As of Q3 2024, the average credit card limit in the U.S. stood at $32,025, marking a 4.1% rise from $30,763 the previous year.1 Proper management of these limits is crucial for financial institutions, as it impacts consumer borrowing capacity and overall financial health.
Advantages of proactive credit limit increases
A proactive credit limit increase occurs when a credit card issuer raises a cardholder’s credit limit without their request. This action is usually dependent on improvements to cardholders’ creditworthiness, including consistent, on-time payments and a reduction in debt.
Proactive increases can enable financial institutions to:
- Increase interchange income: When financial institutions increase credit limits, they can boost transaction volumes, leading to higher interchange income.
- Generate additional interest income: Higher credit limits can lead to increased borrowing, resulting in more interest income for financial institutions.
- Enhance wallet share: By proactively increasing credit limits, institutions can encourage cardholders to use their cards more frequently, thereby increasing wallet share.
- Reduce customer attrition: When cardholders feel valued and supported, they are more likely to remain loyal to their financial institution. Proactive credit limit increases can reduce attrition rates by enhancing customer satisfaction and loyalty.
- Improve customer experience: Cardholders value the convenience and flexibility of higher credit limits, which can lead to increased satisfaction, positive sentiment and potential referrals.
Implementing proactive credit limit increases
To successfully implement proactive credit limit increases, financial institutions must address two key questions:
- Who receives an increase? Use insights to identify cardholders who meet the criteria for credit limit increases. Continuously monitor cardholders’ creditworthiness using advanced tools and technologies to ensure that only responsible cardholders receive increases.
- How much of an increase? Determine customers’ ability to afford additional credit by evaluating their annual income, debt-to-income ratio, and payment-to-income ratio. Set thresholds for these metrics to guide the decision-making process.
Proactive credit limit management
Effective credit limit management is essential for financial institutions aiming to grow their credit card portfolios and enhance customer satisfaction. Read this e-book on proactive credit limit management and discover how your institution can improve wallet share, enhance customer experience, and drive revenue.
1 Experian, Average Credit Card Debt Increases 3.5% to $6,730 in 2024.
