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Aahz

Ask A Credit Analyst!

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The information below was pulled from a previous thread and compiled here for ease of use.
All text (in this original post) in green was originally written by cai24 - CB Credit-Analyst
I have not credited the original questioners and have edited some of the questions in order to make this VERY LONG opening post easier to read (no offense is intended).
I have worked as a credit analyst at multiple large credit card issuers.
Q) If I were to pull someone's credit and I did a soft-pull, then did a hard pull, and placed the two results side by side, what would be the difference?
A) From a judgmental setting, we can see the exact same data on a soft/hard inquiry (including risk scores, payment history, etc). Contrary to popular belief, there is absolutely no difference in the reports. There can be differences in the account review information that is received during periodic/automated credit reviews. Usually, this information is trigger data and shows only a basic summary. However, if the account is referred in for review, we can pull a soft at that time. Once that is done, we can see the full report.
Q) Then what's the motivation for pulling Hard instead of Soft?
A) Whether the bank dictates a hard or soft pull seems to be more related to its interpretation of credit bureau requirements/best practices. I know that sounds odd, because you think there would be consistency. However, there is a lot of bureaucracy, and this often prevents policies from being changed (or reviewed for possible improvement). I spent a considerable amount of time in operations (front end credit analyst/risk review analyst). What many people don't realize is that banks review decisions very closely. There are quality analysts who spend their entire day listening to phone calls, reviewing decisions, and checking for compliance. If you don't follow protocol or exercise bad judgment, it negatively affects your compensation. Most analysts want to make the best decision for the consumer and the bank.
Q) Can you see the payment data on reports?
A) We can see payment data on the soft reports (assuming it is reported by the creditor). In my experience, however, the periodic credit reviews (the ones done automatically by the system) do not use this information.
Q) How important is the FICO Score?
A) In my experience, customers put too much emphasis on their score. If you're speaking to a credit analyst, that will never be a prevailing factor in the decision. Obviously, if the score is a 560, it's unlikely we will be able to overturn the decision (or approve an application). At any of the issuers that I've worked, we have never documented a FICO as an approval/decline reason. It is important for automated decisioning, but it is of minimal importance in judgmental lending. I once declined a CLI for someone with an 850.
We are primarily concerned with the content of the credit report and whether the file justifies the extension of credit. Is the debt manageable for the income? Does the income appear accurate? Is there anything to suggest that the income is under/overstated? If there has been past delinquency, have efforts been made to satisfy the debts? If the applicant is an existing customer, how is the performance on that account (very important factor)?
I would say that in most cases, the average FICO approved by a judgmental lender is lower than a system approval. Based on bank risk appetite, I've declined 760s and approved 660s. Although it may not seem this way, most large banks operate similarly from a judgmental standpoint. Nevertheless, each company has its own quirks ("excessive inquiries," sufficient credit with the issuer, maximum number of products, too many new accounts, etc). It is these individual preferences that seem to cause the most grief.
Q) So FICOs aren't that important?
A) I know many people think that the decisions are entirely driven by risk models. This may be true for auto-decisioning, but it is not the primary factor in judgmental lending. The analyst will be more concerned with the content of the credit file.
When you spend your entire day analyzing credit reports, you really start to understand the limitations of the various FICO models. I've seen numerous 850s, and many of them were surprisingly disappointing. It's a useful guideline, but in my opinion, there are far more valuable indicators.
Q) How do analysts look at paid v unpaid CAs, judgments and liens? Do the amounts matter?
A) I will say that amounts do matter (especially if they are deemed excessive). If the derogatory information is substantial, time away from the delinquency and reestablishment is extremely important. From a judgmental standpoint, it is viewed very negatively to have an unpaid charge off. I understand that there is limited score benefit to satisfying a derog, but when you are speaking with an analyst, we care very little about risk scores. It is much easier to justify an approval when you have someone that has attempted to remediate past credit mistakes.
Credit card delinquency is a major negative (charge offs, judgments, recent slowness, etc).
There are certain factors that are of limited importance. Medical collections, utility accounts, and tax liens are generally a minor concern. Past mortgage stress is often not a disqualifying event, and it is fairly common (Great Recession). We are more concerned with how you handle revolving credit. These factors may cause a system decline or a manual review, but an approval is possible.
There are too many variables for me to provide specific answers. However, from a judgmental perspective, paid is always viewed more favorably than unpaid. Smaller amounts are better, reestablishment is essential, and time away from delinquency is crucial. Try to keep your revolving debt at manageable levels.
Q) Do lenders "remember" that customers once had negative items on their reports - even after the reports are clean?
A) I cannot speak for every issuer, but I can give you some general ideas. Most banks retain a profile of your credit condition when you apply/open an account. It's mostly summary data, so it's not likely to include specific derogatory information. Theoretically, they can see six years from now what your credit condition was at the time of approval (FICO, revolving balances, etc). Does it really matter at that point? In most cases, I would say no. Your payment history and current credit condition will likely be far more important. Your perceived risk is generally based on how you score at the particular time, and your handling of the account is a much larger factor.
I can't count how many times I've encountered this situation. I have decisioned CLIs where the person had a 790, but they had a 680 when the account was opened. Under normal circumstances, it would not prevent me from granting an increase. There could have been inaccurate information, high utilization, or past derogatory information. It would likely be too data prohibitive to store a full credit report.
Even if there is not a BK or derogatory information reporting, you can often tell that there has been past delinquency. It may be something that you ask the customer about, but if he or she qualifies for the increase, it will be likely be granted.
On a side note, I don't foresee your past (obsolete) credit history being a factor in an automated CLI decision. Your present credit report and account handling are going to be the driving factor.
Q) SCENARIO 1:
- I have 6-year-old negatives and 650 FICO.
SCENARIO 2:
- I wait an additional year for clean reports - let's say a 710 FICO.
Which scenario will result in a higher limit 2 years from today? 3 years from today?
A) Although it is preferable to open an account with clean credit, it is not always possible. There are three primary issues that I see when credit is less satisfactory: unfavorable account pricing, smaller credit lines, and less desirable internal risk scores (at least in the short-term). If you revolve, it is much nicer to get approved for 10.99% than 22.99%. Most issuers are conservative with APR decreases, so it will take a considerable amount of time to get the rate lowered. If you pay in full, it's not a concern.
From a simplicity standpoint (and I know many will disagree), I think that Scenario 2 is better. That doesn't mean that Scenario 1 isn't feasible. However, I'd rather get a $5k-$10k system/analyst approval with a fair APR. The subsequent increases won't need to be as substantial, and the customer experience will probably be better. If you have a competitive product, you likely won't need to have ongoing contact with the issuer.
I think that in both circumstances, you can reach a similar credit line. The question is more about the work needed to do so. I know that I've said this multiple times, but each situation is unique. I've seen instances where people were approved for $2k, and the system increased them to $3.5k. After calling an analyst directly, we were able to get them increased to $15k. Their risk scores could be skewed based on collection accounts, minor late payments, or other small incidents. I'm not saying that this is a common occurrence, but generally, automated underwriting favors stronger credit profiles. The auto approval strategies can make sound credit decisions when the person has a 780 FICO and 2% utilization. It's not as easy when the FICO is 680, and utilization is 42%. There are good mechanisms in place to route applications for review, especially where the assigned line seems inappropriate. However, this is not always 100% effective.
One of the harder parts about getting a CLI is that each lender is unique. Is it a hard or soft pull? Is there a restriction on the number of CLIs that I can receive (ie. Amex - once every 6 months)? If I am not satisfied with the decision, can I discuss the result with an analyst? These are all factors that may influence the rate at which you can increase your line.
From a risk standpoint, as your credit quality increases, your perceived risk will likely decrease. It is important to keep revolving balances low, avoid missed payments (as they can affect internal scores), pay above the minimum, etc. These actions can result in more favorable scores and can positively influence your experience with CLIs. You can reach the same point by either strategy. It's navigating the bureaucracy of each issuer and your overall credit file that will ultimately be the limiting factor.
Q) Do lenders care if you PIF multiple times per cycle - e.g. every week?
A) In my experience, this is not typically perceived as a credit risk. The frequency of payments is not important, as long as the account is current and in good standing. However, I have seen circumstances where there are money laundering concerns (large overpayments, sizable credit balances, security issues, and other risky behavior). For most consumers, unless your activity is highly unusual, I would not worry about multiple payments. The risk is largely exaggerated. If you have returned payments (NSFs), that's another story.
Q) What is the impact of max daily balanceas opposed to statement balance?
A) I have never seen this as a feature in internal risk models. I'm not saying that it does not exist, but I have never encountered it. The payments in relation to the balance, utilization, revolving debt, and credit quality are far more important. From a judgmental perspective, heavy account usage is favorable. Analysts can see your cumulative purchase totals, and this can be considered in extending additional credit. I wouldn't be concerned about your balance on a particular day. I would make sure that the account is not overlimit, as I have seen this prevent CLIs.
Q) Do "Flexible Spending Limit" cards (ie. Visa Signature and World Elite MasterCards) really allow you to spend over the Credit Limit as long as you pay the excess each billing cycle.
A) Yes, flexible spending cards will let you exceed the credit limit. The availability is strategy-driven, and in my experience, it cannot be adjusted by analysts. I have seen accounts with substantial availability ($20k+). This amount can fluctuate based on risk factors and credit quality. Again, I can't speak for everyone, but most issuers do not disclose the actual amount. However, if you have a specific purchase, you may be able to ask if you have enough flexibility to accommodate it. I have also seen flexible spending availability on accounts that are not Signature/World Cards, but it depends on the issuer.
I personally think that NPSL Amex charge cards are superior to flexible spending products. I would consider the flexibility as more of an emergency cushion (one-time, non-recurring purchase). Based on my own observations, Amex NPSL is a more effective product. There is also the advantage of being able to use the online approval tool to see if they can an honor a transaction. If you are constantly exceeding your limit on a flexible spending card, I would ask for a CLI.
Q) Do you consider a customer's credit limits at other banks when deciding on a CLI (or initial limit for a new card)?
Do the automated systems use credit limits on other cards as a factor in CLIs (or initial new card limits)?
A) A big YES to both of those questions. Existing limits are one of the biggest contributing factors to the line that you receive. When assigning a limit from a judgmental perspective, we typically try to be competitive with other cards that you have. However, there are multiple factors that can reduce the line that we would otherwise assign. Examples include elevated utilization, past slowness, revolving balances, age of accounts, existing exposure, income, and various risk attributes.
When I reviewed applications/CLIs judgmentally, I typically knew the line I would assign in perfect circumstances. However, I would often have to reduce it based on various credit observations. If you are able to get a better understanding from the customer (situations where customers call in to speak with an analyst), you may be able to be more aggressive with your line assignment.
Automated approval strategies do use credit limits on other cards as a factor in the decision. There are also other criteria, some of which cannot be controlled by the customer. Lines can be affected by risk tolerance, profitability requirements, and other policies. This may sound surprising, but two separate cards (from the same issuer) can generate different credit lines.
If you are looking for a CLI, it helps to have an existing credit card with a comparable limit. However, it is by no means a necessity. In absence of a comparable line, strong usage on the account and an adequate credit profile can be an acceptable reason to extend additional credit. I am sure many have experienced unsolicited CLIs, where the line has grown to be quite sizable.
Q) How do other new credit lines affect your decisioning?
A) It really depends on the overall credit profile. It is not as much of a concern when the person has 20+ years of history (as opposed to someone with AAOA of 3 years). It also depends very heavily on the issuer. Some are more sensitive than others. It's certainly not a positive to see a high number of new accounts, but it's to be expected. It is a competitive industry. Automated strategies often have a specific threshold (and will decline or route after a certain point).
Q) How many recent new cards are considered excessive?
A) This very much depends on the issuer and the credit profile.
Q) How many recent inquiries are considered excessive?
A) This also depends on the issuer and their policies. I've worked at a bank where 3-4 recent credit card inquiries were enough to raise concern.
Q) What is considered recent? -- 3 months, 6 months, 1 year?
A) For new accounts, I would say the "lookback" period is approximately 12 months. I would estimate approximately 3 months for inquiries, maybe 6 in certain cases. Again, it depends on how the credit file looks.
Q) So, anything opened in the last 12 months is considered new?
A) This depends on the issuer.
However, accounts opened within the past 12 months are generally considered new. Some are not nearly as stringent.
From an analyst's perspective, there isn't likely to be a difference between a 3 or 6 month old account. If the file is strong, new credit is less of a concern.
There are multiple variables that would need to be evaluated: the number of new accounts, time in the bureau, utilization, revolving balances, past paydown, existing exposure, and inquiries.
Q) Would too many recent cards or INQs result in a rejection - or more likely a lower CL?
A) New accounts and inquiries can definitely result in a rejection. I worked at an issuer where we routinely declined applications for too many new credit card accounts. We also closed accounts for excessive inquiries or new credit cards after the account was approved.
If INQs or new cards were a major concern, it would more likely result in a decline (as opposed to a lower limit).
Q) Assuming "perfect circumstances" and acceptable existing credit exposure, is income the primary factor in determining the credit line?
A) In my experience, it is the not the primary factor. Credit limits on other accounts are the main determinant. Income is a secondary reason. If anything, it is more likely to be a factor for reducing the line that is assigned. For example, suppose we intend to approve someone for $15k (comparable to their other lines). However, we realize that their income is only $30k. Due to DTI and other risk parameters, we will likely scale the line back to $5k.
Q) Are there specific income "thresholds" (ie. $50k, $100k, $150k)?
A) I have never encountered any thresholds. In my experience, income is often a secondary factor. If you have a borrower with limited revolving debt, established history, and no derogatory information, it has little impact on the decision. It becomes more important in the following circumstances: 1. Revolving balances that appear excessive for the stated income 2. Income that is insufficient to support the installment obligations on the credit file 3. A line that is exorbitantly high for the stated income.
Assuming that there are no major concerns, the income is not likely to materially affect the line assignment. The comparable credit that you have on other accounts is far more important. If I intended to grant an approval for $15k, and there were no credit concerns, income of $80k or $100k wouldn't make a difference.
Q) Is there a fixed percentage of CL to income?
A) I have not encountered a set rule, but 25% is a decent guideline (from a judgmental perspective). I've seen and made numerous exceptions, so it is by no means a specific policy. I have also viewed instances where accounts have been purchased and transferred from another bank. It is not entirely unusual to see a customer that has $60k in income and $35k in credit lines. This is not an ideal situation, but it happens.
Q) Is CL:Income the same percentage for a $30k income as a $100k+ income?
A) I would say that yes, the percentages are typically the same. However, we are typically more aggressive with higher-income individuals. It depends on the credit profile, utilization, and history on the account. Guidelines are flexible, and if it makes sense, we will extend additional credit.
Q) What determines why a lender selects a specific CRA or even all 3 when assessing a request for credit? Why would a lender check one and then check another?
A) It depends whether the inquiries are done by the system or an analyst. Automated decisioning can pull an additional bureau based on certain criteria (lack of trade history, limited file, etc).
If an analyst pulls an additional report, there is usually a specific reason. The most common is a lack of trade history that seems unusual for the borrower (too few trades, missing time, limited revolving history, etc). An example would be someone who has been in the credit bureau's records since 1990. Suppose the oldest trade on the credit file is from 2010. Why is there such a significant discrepancy? Did the consumer have a past bankruptcy or other financial stress? What happened to the older trades? Did they fall off due to age, or were there prior issues? When an analyst notices shorter revolving history than is expected, it raises concerns. Occasionally, an additional credit report can provide further insight.
As to why a lender uses a certain report (why some pull EX, others pull TU, etc), that is usually more business/strategy related. Some lenders prefer a certain bureau (Amex pulling Experian), and others have the computer randomly pull a bureau based on strategy, geographical location, etc. There are typically underlying reasons.
When an additional report is pulled (at the discretion of an analyst), there is generally some type of perceived weakness (see my explanation above). For a strong profile, it is unlikely that you will pull multiple reports (unless the particular lender does it as a decisioning strategy).
Q) Will you match high limits from credit unions - in the same way as high limits from other banks?
A) Absolutely. I've never given less weight (or been told to view negatively) a credit card issued by a credit union. I have always considered them comparable to bank lines.
Q) Will you match a high limit from a secured credit card (bank or CU)?
A) It is possible, but there are too many variables to answer this thoroughly. If we are the only unsecured account, we will likely be more conservative. The handling of the unsecured card is extremely important. How is it managed? Is the account paid in full? How is the history on the credit file? Is there derogatory information? What is the utilization? Any recent delinquency? What is the borrower's income/profession? There are numerous factors.
Q) Do you consider authorized user accounts in any way (positive or negative)?
A) In my experience on the judgmental side, we typically do not consider AUs. If you speak to the customer, you can sometimes gather additional information. Without a direct conversation, they are generally excluded. This can be positive or negative.
Occasionally, you will see a situation where a spouse only has AU accounts (no individual cards). It is surprising, but some consumers do not understand the difference. Many will insist that they contribute money to these accounts and have paid them for years. If there are substantial balances on the accounts, this can be a negative. Although they are not technically responsible for repayment, they are indicating that they help to service the debt.
It becomes a judgmental decision. Does the explanation make sense? Is it probable? Are there sufficient financial resources? What does the consumer do? Is there other income (spousal)? Is there a mortgage on the file? Does the applicant have past revolving accounts?
Q) Do you ever match the limits on AU cards if they are the highest?
A)This is not nearly as common, but there are certainly exceptions (see above).
Q) Does the notation on a report of a "secured" credit card (either open or closed) ever result in a lower initial limit - or a smaller CLI?
A) It depends on the strategy of the issuer. Some want to see unsecured establishment before they are willing to extend credit. If they are willing to approve (and it comes for judgmental review), the line assignment is likely to be more conservative. Once the account is handled well, it can be reviewed for a CLI.
Q) Does the presence of credit products with easier approval standards (Credit One, First Premiere, Fingerhut, etc) on a report a factor into your decisions?
A) I would say that the presence of these accounts does not directly impact the decision. I've never said, "This person has a Credit One account….Declined." However, consumers with these products tend to have weaker files.
What is the underlying reason that the consumer has subprime products? Is there a history of BK? Past stress? Limited establishment? The specific products are not necessarily a good indication of the consumer's perceived risk. The content of the credit file and the handling of these accounts is far more important.
Ultimately, it depends on the lender. Some are able/willing to assume more risk.
Q) If you saw a personal statement on a credit report that read "Thank you for taking the time to review my credit report", what would you think?
Does any personal statement make a difference?
A) That would definitely make me laugh. I've seen so many different comments, but I don't think I've ever had someone thank me! I always read the statements, probably more out of curiosity than anything. They do very little to impact the decision, and I am not normally influenced by them.
Given the choice, I would rather speak to the applicant directly. I have seen instances where someone has no delinquency on an account, but there is an old statement. It provides an explanation for past derogatory information that no longer exists on the report.
Needless to say, I wouldn't recommend adding one.
Q) When you see a Hooters card what do you think? Specifically a Hooters card.
A) I think most analysts do their best to be impartial. Whatever my thoughts may be about a certain account, I can't let that impact the decision. If the account shows strong history, then It can certainly contribute to an approval. You don't want to be influenced by factors that have little impact on credit risk. Decisions are constantly reviewed, so accuracy is very important.
Q) FICO considers 90 days+ late to be Major Delinquencies. If the only neg was 1- 90 day late, would that scare you off?
A) It depends on the recency, frequency, and type of account.
In my experience, we are generally more forgiving with student loans (forbearance/deferment confusion) and smaller accounts (retail charge cards).
If the profile is otherwise strong, and this is an isolated occurrence, I wouldn't be overly concerned.
However, if the applicant has high utilization, or other factors that suggest possible stress, then it becomes more of an issue. Why was the borrower late? Is there a valid explanation? We are trying to make an educated risk assessment.
If it's clearly an isolated occurrence, then it can be mitigated with other factors. Of course, if the borrower was recently 90 days past due on a mortgage, that is reason to be cautious.
Q) So student loan delinquencies are often overlooked?
A) In my experience, student loan delinquency is less concerning than other derogatory information. Unless the delinquency is recent/severe, I have overturned these declines. This is contingent on strong revolving history. If they are older slow payments (30-90 days), I'm not generally too critical. Assuming the delinquency occurred at the same time (on all of the trades), I would likely consider it a singular problem. If it is widespread, recent, or ongoing, additional information would be necessary.
Q) Does card usage matter for CLIs?
A) This varies slightly by issuer, and I have encountered different policies.
However, in general, we will increase the line if there is comparable credit. We want to be competitive and give the customer a reason to use our card.
Assuming there are no credit factors to disqualify the applicant, I typically have no concerns about increasing the limit. There are reasons to be more cautious (limited revolving paydown, short history, past credit concerns, etc). Nevertheless, if the file is strong, it is worth granting a CLI for a good customer.
Q) Spread balance across several cards or have higher utilization on fewer cards?
A) This may be a different answer than you expect, but I would prefer to see balances on as few cards as possible. 5 would be better than 8, and 1-3 would be even more preferable. The fewer the better.
I understand that limiting balances to fewer cards will increase individual account utilization, but I don't care. From a judgmental standpoint, we are not concerned with maximizing your FICO score. We are more interested in the perceived risk.
Balances spread across numerous cards makes the financial situation appear more disorganized and less feasible (for multiple reasons). I would rather see someone making 2 credit card payments than juggling 12 accounts.
Q) Have you ever made a decision based on the consumer's tone or confidence level?
A) If we have an opportunity to speak with an applicant/customer, his or her responses to our questions is important. Answers can directly influence a credit decision. I can't say that the confidence level necessarily matters. I am more concerned about whether the information is consistent, and if it alleviates or worsens any credit concerns.
When customers give us insight, we get a better understanding of their financial situation. This can be positive or negative.
As for their tone, it depends. I've spoken to a large number of uncooperative/rude people. It's frustrating, but it is part of the job. If you have someone that is unwilling to disclose information, then it can make it difficult to reach an approval. For example, I have had applicants tell me that they are not providing their income under any circumstance, which is why they listed $0 on the application.
I highly encourage you to be cooperative with the analyst, because it makes the process much smoother. Typically, we want to approve you! I know it may not seem that way, but we have a responsibility to conduct due diligence. That decision can be reviewed at a later time, so proper documentation is essential.
When people are condescending or unwilling to be nice, it makes our job more difficult.
Q) Why are Credit Unions less conservative when giving Revolving Credit compared to larger banks?
A) I think it depends on the bank/credit union.
Credit unions are much more likely to verify income. For that reason, they may be initially more aggressive on lines under $25k. Of course, your income could also be a limiting factor. I know multiple credit unions that have set exposure limits, regardless of the customer's financial situation. That's not typically the case with banks, and they are probably more likely to extend sizable lines ($75k+).
Q) One of the concerns I'm sure that ranks high with banks is how people with sterling credit are impacted by retirement. Few have pensions days and too few have saved/invested for retirement.
How are banks addressing this?
A) I can only give limited input, but in my experience, banks tend to be more reactive than proactive. I do not foresee a strategy that looks specifically at the retired segment (or those nearing retirement). There are too many Regulation B concerns. The standard is still to look for signs of credit deterioration and make adjustments based on those observations. My thought is that any strategy aimed at curtailing exposure to those with financial vulnerability will need to broad in scope. I would expect the same risk parameters to be implemented across the entire portfolio. This would prevent one population from being unjustly targeted. Again, this is strictly my opinion.
I think that banks are well aware of the issue. It's a complicated topic, and I don't think there is a clear answer. Managing credit exposure throughout various cycles is always a challenge. That's the reason that periodic credit reviews are conducted, but there are inherent limitations. It would be beneficial if there were a direct means of detecting impending financial stress. Credit deterioration is more of an aftereffect, and it can take time before signs are visible.
Q) I'm retired and get social security (20k/y), but much of my income is from realizing capital gains.
If I sell something that hasn't appreciated instead of something that has appreciated I can have zero income from the former or 6 figures from the latter. At least based on the IRS's definition of income.
How, exactly, do you look at retired people's credit?
A) Where I have worked, we have always asked for income from assets. If you are generating capital gains or other investment income, you should estimate the figure. We understand that it can vary considerably.
If you don't have a lot of debt, then the total income is not all that important.
There are calculations that we use to make sure that installment obligations are sufficiently serviced. Assuming that you don't have a large mortgage payment or something like student loans, then you should be fine.
We encounter this scenario very frequently. If it is difficult to determine a figure, I will ask the customer to give an approximation of his or her liquid net worth.
Q) Does "Pending" really just mean "Declined"?
A) There is nothing wrong with pending for a manual review. It doesn't necessarily mean that your application scored poorly, or that your credit is sub-standard. There are numerous strategies in place to ensure that your application is decisioned correctly. Someone with an 820 and high lines can get routed to an analyst.
Q) What would you consider a strong revolving history?
Are two cards with a year of perfect payments and <1% utilization sufficient -- assuming a thin file?
How much do closed positive accounts help?
Can AU accounts ever help?
A) 1 year is a bit light, but it's possible. That's a situation where I would have to see the file, and it would depends on the issuer. Some would be more apt to approve in those circumstances. The closed accounts may help, if they are revolving trades. I don't foresee AUs being of much assistance here. I would personally want to speak with the applicant to get a better understanding of this situation. Is there any other delinquency? What does the applicant do? What are the other credit lines? Any mortgage history?
Q) Do analysts know about D* and would they factor into your decisioning on manual review?
A) We are well aware of the Amex MSDs, at least the experienced analysts. They are easy to detect on a manual review. There are certain analysts who are not as informed, but they eventually become familiar with them. It is clear that many people are using them "strategically," and others are completely oblivious. I've declined applications for limited revolving history, and applicants have told me that they've had an Amex since 1992. I then explain to them that the account was opened three months ago.
Q) By looking at credit reports can you distinguish a "FICO strategist" from "normal" people?
A) I don't look at those types of patterns/behaviors when assessing credit risk. I have no logical way to document a correlation between credit savviness and credit risk. I'm not saying that a relationship doesn't exist, but it wouldn't be sufficient for lending purposes. My assessment is based on what I see in the file and information gathered from the customer.

 

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Brought over from the original thread as it had not been answered yet


Hi Cai,

 

Thanks for all the valuable insight.

 

Few questions,

 

1. If there are 30-day-lates that have aged to more than 12 months and 0% utilization with good payment history within last 12 months, but lot of new accounts (say 6) within the last 6 months and their corresponding inquiries... would that give you pause in approving that account?

2. The above question again, but what if the 30-day-late that's more than 12-months old was with the same bank this application is for? Would that change things? (that 30-day late was with this same bank, account was paid full and closed at the request of consumer)

3. When a consumer applies for a new credit card but already has other credit cards with this same financial institution, do you review the exist products that they have? What details do you consider beyond payment history on those accounts?

4. Either during new apps with existing cards like #3, or during periodic account reviews, do you notice people manufacturing spending on existing cards to earn rewards? (like buying gift cards that the later cash out via some means). Do you look for round amounts like $500 or $1000 or amounts with purchase fee baked in like $504.95, etc? How do banks view this kind of activity?

 

*G

Edited by Aahz

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Also brought from original thread...

I would just imagine if you sat there all day, and looked at credit reports for a living, you would be able to spot the Fico hobbyist types fairly quickly. I could be wrong as I have only looked at mine. But if true and I were a UW, that would come to play in deciding things. For the UW, its about making the best educated decisions for the banks they are working for.

 

Maybe Cai can chime in on this.

Edited by Aahz

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If cai24 is still answering questions and all, I have something that I've been wondering about for a while now. This thread has been an incredible source of informaton and there are certain things that I had suspected for a long time now but good to see someone confirm it.

 

Can adverse action like the kind that can result in account closures be triggered automatically, especially after applying for two store cards from an issuer that you may already have a card with or is there a whole team at the CC companies that also monitors for activity that could be deemed risky? What are some other major red flags when it comes to whether a lender decides to close all the accounts completely as opposed to reducing CLs?

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Many Thanks to Cai and the Wizard of Aahz

 

 

Also brought from original thread...

I would just imagine if you sat there all day, and looked at credit reports for a living, you would be able to spot the Fico hobbyist types fairly quickly. I could be wrong as I have only looked at mine. But if true and I were a UW, that would come to play in deciding things. For the UW, its about making the best educated decisions for the banks they are working for.

 

Maybe Cai can chime in on this.

 

Many Thanks to Cai & the Wizard of Aahz!

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Great information, thank you very much.

 

I do find the part about amex MSD's interesting. Since a TON of my credit profile age is built on it.

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Very well done Aahz, great read!

 

It's a good thing

 

cai didn't get

 

the memo

 

about

 

typing posts like

 

this, or

 

that OP would

 

be very long

 

indeed.

 

And yet, cai

 

comes across as

 

very authoritative.

 

Take note, <enter> key abusers. ;)

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Great information, thank you very much.

 

I do find the part about amex MSD's interesting. Since a TON of my credit profile age is built on it.

 

I think the takeaway here is that D* helps with scoring (thus with automated decisions) but not with manual review.

 

Very well done Aahz, great read!

 

It's a good thing

 

cai didn't get

 

the memo

 

about

 

typing posts like

 

this, or

 

that OP would

 

be very long

 

indeed.

 

And yet, cai

 

comes across as

 

very authoritative.

 

Take note, <enter> key abusers. ;)

:rofl:

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Hi Cai,

 

Thanks for all the valuable insight.

 

Few questions,

 

1. If there are 30-day-lates that have aged to more than 12 months and 0% utilization with good payment history within last 12 months, but lot of new accounts (say 6) within the last 6 months and their corresponding inquiries... would that give you pause in approving that account?

2. The above question again, but what if the 30-day-late that's more than 12-months old was with the same bank this application is for? Would that change things? (that 30-day late was with this same bank, account was paid full and closed at the request of consumer)

3. When a consumer applies for a new credit card but already has other credit cards with this same financial institution, do you review the exist products that they have? What details do you consider beyond payment history on those accounts?

4. Either during new apps with existing cards like #3, or during periodic account reviews, do you notice people manufacturing spending on existing cards to earn rewards? (like buying gift cards that the later cash out via some means). Do you look for round amounts like $500 or $1000 or amounts with purchase fee baked in like $504.95, etc? How do banks view this kind of activity?

 

*G

1. If there are 30-day-lates that have aged to more than 12 months and 0% utilization with good payment history within last 12 months, but lot of new accounts (say 6) within the last 6 months and their corresponding inquiries... would that give you pause in approving that account?

 

This will depend on the issuer, but in my experience, I would be very cautious. I would need to see the full credit report. At one of the companies where I worked, this would be an outright decline (not counting the delinquency): Excessive new accounts, too many recent inquiries. I would look closely at the file, and preferably, speak with applicant. What was the reason for the delinquency? What is the exact age of the late payments? What is the need for the new accounts? More importantly, how old are the existing revolving trades? Is there good depth? Do we have any open exposure or past history with the customer? Is there mortgage history? Does the file support the stated income? There is a lot of information that would need to be developed. Delinquency is never viewed favorably, but there can be mitigating factors. The age of these late payments is not clear. The presence of new trades and recent inquiries create additional concern.

 

2. The above question again, but what if the 30-day-late that's more than 12-months old was with the same bank this application is for? Would that change things? (that 30-day late was with this same bank, account was paid full and closed at the request of consumer)

 

It can be good or bad depending on the situation. Is this an isolated 30 day? We could review the account and see when it was opened, how it was handled, whether it was used consistently, and whether payments were relatively timely. Were there numerous late payments (less than 30 days and not reflected on the credit report)? Was there a history of returned payments (NSFs)? Did we have to take AA on the account in the past? When I see a history of delinquency, I will often review the account notes to see if an explanation is present. Was it simply an oversight? Did we have to make numerous calls to the customer?

 

3. When a consumer applies for a new credit card but already has other credit cards with this same financial institution, do you review the exist products that they have? What details do you consider beyond payment history on those accounts?

 

I always review existing accounts, whether they are open or closed. This is crucial to the credit decision. The credit report is important, but the handling of an existing account is paramount. We generally like to reward customers that handle our cards well. We don't want to create a poor customer experience if it can be avoided. I look at the existing exposure, payment history, usage, and delinquency history. Based on that review, and an assessment of the credit report, I determine if we are able to grant additional exposure. Does the file support it? Is the income sufficient? Would extending additional credit be aggressive? If there are exposure concerns, but the customer is otherwise creditworthy, we can look to reallocate (ie. move $5k from the existing account).

 

4. Either during new apps with existing cards like #3, or during periodic account reviews, do you notice people manufacturing spending on existing cards to earn rewards? (like buying gift cards that the later cash out via some means). Do you look for round amounts like $500 or $1000 or amounts with purchase fee baked in like $504.95, etc? How do banks view this kind of activity?

 

This depends slightly on the issuer. Some are more sensitive than others. I will provide my general experience. When we look at exposure, we review the accounts closely. We don't like manufactured spending, and we know how to identify it. It is viewed negatively, especially when customers are opening and closing accounts solely for bonuses. Although our main role is to assess credit risk, we can decline an application if it is not likely to be a profitable relationship. We don't like when someone opens an account, completes a $500 Amazon Payment to get the rewards, and never uses the card again. This scenario makes us less flexible and also more unwilling to reallocate credit lines.

 

Edited by Aahz

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Since AU accounts don't hold as much weight in FICO as they used to I opened a joint card with my daughter. This gave a 19 year old with about 15k annual income a single 9k credit line (and a closed 4k AU account).

 

Are Joint accounts clearly marked as such on reports that you see?

If so, are they weighted more like an individual account or an AU account by underwriters?

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Since AU accounts don't hold as much weight in FICO as they used to I opened a joint card with my daughter. This gave a 19 year old with about 15k annual income a single 9k credit line (and a closed 4k AU account).

 

Are Joint accounts clearly marked as such on reports that you see?

If so, are they weighted more like an individual account or an AU account by underwriters?

Joint accounts are indicated on the report. Each bureau has an ECOA code to identify the liability. It is preferable to have individual accounts, but joint trades are a close second. They are perceived much more favorably than AUs.

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Thanks cai!

Always nice to hear I made the right move (especially when it comes to helping the kidlet).

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Cai,

 

You've previously mentioned that lenders try to match limits from other issuers, in order to offer a competitive product. And also that a consumer's overall credit exposure is a limiting factor for the credit line at a given issuer. Clearly there is a tension between these two factors.

 

How do you balance these factors in your decisioning?

 

Let's say I have potential max exposure at your bank for $25k (assuming ideal conditions, low util, sufficient income, etc.). And I am a new customer or currently have a lower CL at your bank. Assume I already have $25 lines from several other issuers. At what point would my total exposure at other banks become a limiting factor for my credit line at your bank?

 

Thanks in advance!

-tweak

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Cai,

 

You've previously mentioned that lenders try to match limits from other issuers, in order to offer a competitive product. And also that a consumer's overall credit exposure is a limiting factor for the credit line at a given issuer. Clearly there is a tension between these two factors.

 

How do you balance these factors in your decisioning?

 

Let's say I have potential max exposure at your bank for $25k (assuming ideal conditions, low util, sufficient income, etc.). And I am a new customer or currently have a lower CL at your bank. Assume I already have $25 lines from several other issuers. At what point would my total exposure at other banks become a limiting factor for my credit line at your bank?

 

Thanks in advance!

-tweak

It looks like I was not clear in my original response. I was referring to existing exposure with the bank in question. For example, assume that you already have a $10k line with us. On a new account, we may be willing to extend an additional $15k. You would have $25k total exposure across two accounts. We would consider that comparable to your other lines. Would we be willing to go higher? It's very possible. It depends on your credit profile and how you use the accounts. Your total OTB (open to buy) refers to the revolving availability that you have with all banks. I've also seen it called total exposure or overall exposure. The terms are largely interchangeable. This is not normally a concern, unless there is some type of perceived risk. In my experience, OTB is rarely a limiting factor, unless there is high utilization or excessiving revolving debt.

 

I should also mention that there are some issuers who have little interest in being competitive. They are conservative with lines and will want significant account activity to justify increasing them. This isn't as common with the larger banks.

Edited by cai24

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Your OTB (open to buy) refers to the revolving availability that you have with all banks. This is not normally a concern, unless there is some type of perceived risk. In my experience, OTB is rarely a limiting factor, unless there are utilization concerns.

 

Thanks, cai!

 

You were perfectly clear. This was my misunderstanding of the concepts of exposure and OTB. I understand now.

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Your OTB (open to buy) refers to the revolving availability that you have with all banks. This is not normally a concern, unless there is some type of perceived risk. In my experience, OTB is rarely a limiting factor, unless there are utilization concerns.

 

Thanks, cai!

 

You were perfectly clear. This was my misunderstanding of the concepts of exposure and OTB. I understand now.

 

If it makes you feel any better, terminology varies greatly. I updated my previous comment, so that it is not as confusing. Every employer seems to have a different standard. I think it's fine to refer to OTB as exposure. The terms are largely interchangeable. I should have prefaced it by saying "OTB (at my employer) refers to revolving availability that you have with all banks." I've seen other terms, such as total exposure, overall exposure, etc. You just want to be able to distinguish between exposure at your bank and the aggregate revolving availability.

Edited by cai24

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Hey Cai, what value to banks see in the secondary CRAs like Innovis, ARS, and IDA? Are these only used with manual review, or are they part of the automated app process? Also, if these are frozen by the consumer, how does that impact the application process?

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I should also mention that there are some issuers who have little interest in being competitive. They are conservative with lines and will want significant account activity to justify increasing them. This isn't as common with the larger banks.

Can you say marukai? :P

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Hey Cai, what value to banks see in the secondary CRAs like Innovis, ARS, and IDA? Are these only used with manual review, or are they part of the automated app process? Also, if these are frozen by the consumer, how does that impact the application process?

This is one question where I can't provide much insight. I'm sure if I worked at US Bank, I'd have a better idea. I've seen where they've been tested on limited populations, but the overall interest at most banks seems limited. Of the three, ARS appears to be the most troublesome, as they are specifically tracking applications. From what I understand, it is worthwhile to freeze ARS/IDA. I've heard of people still getting approved at US Bank without those reports accessible. Based on the information that they provide, I don't see the value proposition for either CRA. I suppose of the two, ARS would be more useful. As for Innovis, I have never worked at a company that routinely pulled it.

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Hey Cai, what value to banks see in the secondary CRAs like Innovis, ARS, and IDA? Are these only used with manual review, or are they part of the automated app process? Also, if these are frozen by the consumer, how does that impact the application process?

This is one question where I can't provide much insight. I'm sure if I worked at US Bank, I'd have a better idea. I've seen where they've been tested on limited populations, but the overall interest at most banks seems limited. Of the three, ARS appears to be the most troublesome, as they are specifically tracking applications. From what I understand, it is worthwhile to freeze ARS/IDA. I've heard of people still getting approved at US Bank without those reports accessible. Based on the information that they provide, I don't see the value proposition for either CRA. I suppose of the two, ARS would be more useful. As for Innovis, I have never worked at a company that routinely pulled it.

 

It's been a recent trend here. A good number of members have had approvals with IDS/ARS frozen.

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