The word "loan," which was not too long ago a four-letter one among Recession-riddled consumers, carries much less baggage these days. There is an appetite for credit in nearly every corner of the U.S. lending marketplace: Credit card debt is projected to total $900 billion by the end of the year, auto loan balances have reached $1 trillion for the first time ever and mortgage debt is currently sitting at more than $8 trillion.
What's more, Americans are more creditworthy than they have been for some time. The national average FICO score, now at 695 according to Fair Isaac Corp., is the highest it's been for at least 10 years. But ask yourself: What kind of a credit line would that score earn at my credit union?
If you're like many, the answer isn't terribly exciting, particularly when you consider the growing number of non-traditional lenders virtually begging to extend credit to a borrower with that kind of score. The ferocity of that competition is only getting stronger, as online lenders raised a record $542.2 million in equity in the first quarter of this year alone.
Credit unions too often find themselves on the extreme end of conservatism when it comes to extending credit, particularly within the credit card portfolio. This leaves hundreds, potentially thousands, of worthy borrowers off the credit union radar – and squarely in the sights of those newcomer fintech lenders. It is estimated almost 800,000 consumers have turned to these start-ups for a loan.
It is becoming increasingly clear that credit unions allowing low-risk tolerance and outdated underwriting models to dampen their lending success may soon find themselves out of the game altogether – especially in the credit card space.
Success often comes down to measured aggressiveness. Major banks and startup lenders pursue cardholders with gusto, which naturally makes them feel appreciated. Generally, credit unions aren't as aggressive as their competitors. They may offer credit line increases when asked, but there is often no strategy for increasing credit lines in bulk or by member segments. Instead, credit union lenders rely on a dated system of tiers (e.g., $6,000 for the best cardholders, $2,000 for the next tier and $500 for students and the credit-stressed).
Following an outdated underwriting model is as good as leaving money on the table. That's because 70% of a credit card program's revenue is derived from finance charge income. A cardholder's balance almost always correlates to his or her credit limit. Conscientious credit users typically will strive to keep their balances below 30% of their overall available credit. If that limit is unnecessarily restricted, it means lower potential revenues for the credit union.
Simply put: Raising limits raises balances, which raises finance income and member engagement.
Higher credit limits can also provide a credit union with a distinct competitive advantage for another reason. Consumers educating themselves on methods for improving their credit scores have become aware that a higher-limit credit card can help (high limit + low balance = better score). Why leave this likely profitable business for the other guy?
Figuring out a responsible way to raise limits, even in a risk-averse environment, doesn't have to be complicated. In fact, it can be done in three simple steps: Identifying the right limits for the right cardholders, eliminating high-risk accounts and checking your plan for compliance with relevant regulations. Following this process can yield total profit increases above 20% in just six months.
As we all know, the world of credit cards is changing and fast. In the digital payments game, every credit card issuer chasing that default card position. Credit unions aren't going to get there if members are worried about hitting their limits because of how frequently they use Apple Pay, Android Pay or Samsung Pay.
For credit unions, raising the credit line beats the competition at their own game, demonstrates the credit union's confidence in its members, and ultimately generates the kind of loyalty that keeps that relationship healthy and growing for the long term.
Karan Bhalla is managing director for IQR Consulting. He can be reached at 703-473-1574 or [email protected].
© 2025 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
