Credit Limit Trends: Have Canadian Credit Card Issuers Been Missing an Opportunity?

Credit limit optimization strategy has always been a hot topic in the credit card industry.

How do you help provide new customers with credit that will satisfy their spending needs without incremental risk exposure?

How do you adequately assess existing customer’s debt repayment capacity so that you are able to offer an appropriate credit limit increase?

These are just a few of the questions that are at the top of every credit card issuer’s docket.

Issuers have become increasingly interested in gleaning insights about their customers (both; prospective and existing).

The longer a customer is on books the more information a credit card issuer is able to obtain about this customer’s credit repayment habits. The other end of the spectrum constitutes issuers having to deal with little to no information about a new customer during the onboarding process. Often times credit card issuers have to deal with limited information at the time of new customer onboarding process.

Historically, Canadian credit card issuers have been conservative with credit limit assignments for new accounts. The general preference has been to offer lower credit limits to start and periodically assess customer qualification for a potential credit limit increase. Thus, the majority of Canadian credit card issuers prefer to manage credit limits during the account management stages, thereby potentially missing out on an opportunity to increase customer engagement with a new card, which may result in lost incremental revenue. It has also been observed that Canadian credit card Issuers have become more stringent with credit limit assignments compared to a few years ago.

For example, we have seen a decrease of 21% (from $5,628 to $4,421) in the average credit limit assigned to a new credit card account since Q4 2014 to Q4 2018

At the same time, if we look at credit limits for tenured accounts (over 6 months on book), we see a completely different trend. As credit card Issuers continue to explore new data sources and alternative customer creditworthiness assessment models, we are starting to observe more generous credit limit strategies. For example, an average Canadian credit card Issuer, we have seen an 8% increase in credit limits for tenured account in the last 4 years (from $8,331 to $9,033).

When comparing average limits for new accounts with the same for tenured accounts, it is clear that on average, credit limits for tenured accounts are close to double the credit limits for new accounts. According to Equifax’s data, almost 50% of accounts opened in 2017 had their limits more than doubled over the last 2 years.

We see a notable tendency by Canadian credit card Issuers to avoid unnecessary risk at the acquisition stage and assign inherently lower credit limits to their new accounts, only to double these limits a few months after.

From a customer’s perspective, this is far from an ideal scenario.  It is clear that there is an opportunity for Canadian credit card issuers to become much better at initial credit limit assignments.

Learn more here.

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All information featured in this blog is sourced from the Equifax Database of May 2019

This blog post is published by Equifax Canada Co.© 2019 All rights reserved. No part of this publication may be reproduced, copied or transmitted in any form or by any means, or stored in a retrieval system of any nature, without the prior permission of Equifax Canada Co. This blog post is for informational purposes only and is not legal advice and should not be used, or interpreted, as legal advice.  The information is provided as is without any representation, warranty or guarantee of any kind, whether express or implied.  Equifax will not under any circumstances be liable to you or to any other person for any loss or damage arising from, connected with, or relating to the use of this presentation by you or any other person.  Users of this blog post should consult with their own lawyer for legal advice.

About the Author

Anna Voinovskaia

Anna is a Director, FI Credit Card Strategy and Innovation at Equifax Canada. After graduating with an MBA degree from Schulich School of Business, Anna held a variety of roles within the Financial Services Industry. For the larger part of her 10+ years career, Anna’s professional interests have revolved around the Credit Card Industry, where she continues to focus her research as part of her present role at Equifax.

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