Inside Marketing: 4 Steps to a Portfolio-Growing Credit Line Increase Campaign

Credit unions with low risk tolerance that also follow outdated underwriting models may soon find themselves out of the credit card game all together. One proven strategy for becoming a strong credit card issuer in today’s competitive environment is data-driven credit line management.

$4.7 billion University of Iowa Community Credit Union, North Liberty, Iowa, set a goal to grow outstanding balances without a high marketing expense. To meet this goal, the credit union partnered with data analysts who designed and deployed a credit line increase campaign personalized to each cardholder. 

What separated this from more traditional campaigns was the diligent, four-step process the credit union followed. The highly targeted approach ensured the right offer reached the right cardholders at the right time, increasing both the effectiveness and return on investment of the credit line increase campaign.

As a result, the data-driven campaign generated $7.7 million in incremental spend, as well as $3.4 million in incremental balances—all in the span of 10 months.

Below is an overview of the four-step process other credit unions can use to see these same kinds of results in their next credit line increase campaign.

1. Exclude risky cards.

The first step is to filter out risky cards using a mix of internal and external variables. These variables should include: 

• Credit bureau statistics, such as FICO scores, number of inquiries, bureau delinquencies and modeled income;
• Internal behavior, including delinquencies, cash advances, payment rates and utilization; and
• Other segmentation models, such as TRIP (transactors, revolvers, inactives and paydowns) analysis, seasonality analysis and likelihood to respond analysis.

The goal is to determine the accounts with the highest propensity to go delinquent and exclude them from the get-go.

2. Segment and determine credit limit.

After excluding risky cards, the next step is to segment the remaining accounts into homogeneous groups and determine the optimal credit limit for each group. This is accomplished through a statistical analysis of performance data from the last 12 to 24 months, in combination with credit bureau data and other variables.

The following basic segments can be used as a starting point:

• Low credit card balance, high bureau balance—These accounts offer an issuer the largest opportunity and should be awarded higher, more aggressive credit limits.
• High credit card balance, high bureau balance—These accounts are riskier and should be awarded less aggressive credit limits.
• Low credit card balance, low bureau balance—These accounts aren’t using credit and should be excluded or awarded minimal limit increases depending on the credit union’s overall strategy.

3. Ensure compliance and approval.

As regulated by the Credit Card Accountability Responsibility and Disclosure Act, it’s important to ensure the cardholder has the ability to repay the extended debt prior to granting a credit line increase.

Our firm’s proprietary methodology takes into account data such as living expenses, housing expenses, loan installments and taxes to determine the available disposable income. The goal is to make sure the cardholder has sufficient disposable income to make the minimum payment based on the new proposed credit limit.

4. Execute the campaign.

Once steps 1 through 3 are completed, campaign execution can begin. A successful execution includes the following components:

• Final data preparation—The desired output is a list of cardholders eligible for a credit line increase and their optimal limits based on their ability to repay.
• Testing mechanism—Test the offer with an adequately sized test group and compare the results to a control group.
• Cardholder communication—Use a variety of channels to communicate the offer to cardholders, including direct mail reinforced through credit card statement messages.
• Implementation—This will need to be done in coordination with the issuer’s card-processing partner.

This entire four-step process can be completed in approximately six weeks. Once implemented, the key to future success is monitoring and measuring campaign results. Be sure to compare pre- and post-campaign period results one year apart.

The most successful issuers adjust credit limits multiple times each year, as often as monthly, for certain accounts. This proactive line management mitigates risk and, when used in conjunction with marketing efforts such as balance transfer and spend campaigns, can enhance results and significantly increase incremental revenues.

Terence Rebello is senior manager for EXL Analytics, which merges statistical data mining with consultation to help financial institutions improve processes and business functions. He can be reached at terence.rebello@exlservice.com.