Personal Finance

Why do banks do this? Pre-approvals/approvals for tiny tiny limits.

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  • Aug 21st, 2017 10:14 pm
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[OP]
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Jan 27, 2004
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Why do banks do this? Pre-approvals/approvals for tiny tiny limits.

Why do banks do this? I speculate and know of a few reasons.

I keep no-fee/pay as you go accounts at all banks. Just in case...

TD pre-approved me for a credit card with the tiny limit of $500. So i guess they trust me... but only a little bit. Lol

I also seen people with very bad credit (write offs & collections) get granted small limit credit cards between $300-$500. From Canandian tire and walmart. I suspect ct and walmart do this to increase loyalty to their brand. They risk a small amount to people with bad credit. Just a few hundred.
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Apr 23, 2017
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UrbanPoet wrote: Why do banks do this? I speculate and know of a few reasons.

I keep no-fee/pay as you go accounts at all banks. Just in case...

TD pre-approved me for a credit card with the tiny limit of $500. So i guess they trust me... but only a little bit. Lol

I also seen people with very bad credit (write offs & collections) get granted small limit credit cards between $300-$500. From Canandian tire and walmart. I suspect ct and walmart do this to increase loyalty to their brand. They risk a small amount to people with bad credit. Just a few hundred.
I always thought that issuers like Can Tire and Walmart do it because people with bad credit are more likely to revolve a balance and pay interest, making them the issuer's most profitable customers. If they give them a high limit, the issuer risks that the customer will run up the limit (based on past credit report activity/low score) and perhaps be unable to afford the interest payments and might default on it. If they keep the credit limit low, the customer can run it up and still be able to afford the interest payments without much risk of defaulting (most won't default on a debt of $500 as it is easy to meet the minimum payments on that amount). It is a balance between maximizing profit (giving high limits to people who will probably revolve) and minimizing risk (not giving too high a limit to people who will probably revolve when they have a very bad credit history).
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Aug 24, 2016
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There's lots of variables that go into granted credit limits, but preapprovals are basically credit score driven.
Other variables are how high current credit limits held are, utilization on those lines, total limits compared to annual income and your credit history length.
If you're fairly new to credit, you're more likely to get a smaller limit.
If your utilization is somewhat high, but you have a good history, you're more likely to get a smaller limit.
If you have a lot of credit already available to you, you're more likely to get a smaller limit.
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Most banks are extremely conservative and won't give you high limits. TD was the first company to give me a credit card back when I was 18, but they haven't offered to increase my limit once in 15 years. I've had cards from American Express, Tangerine, Amazon (Chase Manhattan), MBNA, Costco, Petro-Canada, HBC, and all sorts of other companies with high initial limits and subsequent offers to increase my limits, but nothing from the brick-and-mortars.
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Apr 23, 2017
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Piro21 wrote: Most banks are extremely conservative and won't give you high limits. TD was the first company to give me a credit card back when I was 18, but they haven't offered to increase my limit once in 15 years. I've had cards from American Express, Tangerine, Amazon (Chase Manhattan), MBNA, Costco, Petro-Canada, HBC, and all sorts of other companies with high initial limits and subsequent offers to increase my limits, but nothing from the brick-and-mortars.
Canada Trust (pre-TD) used to give high limits to new customers. They were my first card I applied for a month after getting my first full time job and they gave me a limit of 18,000 (that was in the 1980s so the buying power of 18,000 was higher than it is now). My second card I asked for was 4 months later and was from RBC (I wanted a Visa and a MasterCard) and they gave me a limit of 1,000 (again, 1980s dollars, but big difference between CT and RBC in the limit).

Edit: Checked inflation calculator and 18,000 credit limit from Canada Trust back then has the buying power of $34,000 today. The RBC 1,000 limit today would be about 1,800.
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I find they preapprove you for a small limit to tell you that your are eligible based on preliminary info. The. When you give them permission and they have your credit history they can increase if your profile matches. I went fro. $1000 to an $25000 offer.
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coolintheshade wrote: There's lots of variables that go into granted credit limits, but preapprovals are basically credit score driven.
Other variables are how high current credit limits held are, utilization on those lines, total limits compared to annual income and your credit history length.
If you're fairly new to credit, you're more likely to get a smaller limit.
If your utilization is somewhat high, but you have a good history, you're more likely to get a smaller limit.
If you have a lot of credit already available to you, you're more likely to get a smaller limit.
I keep expecting to see this in practice, but the banks keep giving me big limits the more cards I've piled on during churning.
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coolintheshade wrote: There's lots of variables that go into granted credit limits, but preapprovals are basically credit score driven.
Are they really? PC (Simplii) kept saying I was preapproved for a line of credit. However, they hadn't done a hard check on my credit, and had to ask my permission to do so if I wanted the line of credit. I think they just did soft pulls and decided I was low risk.
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FoFai2015 wrote: I think they just did soft pulls and decided I was low risk.
Exactly. What do you think they get with their soft pull? Credit score
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coolintheshade wrote: Exactly. What do you think they get with their soft pull? Credit score
I thought they got less information than that with a soft pull (I thought it was like getting a mailed Equifax or Transunion report). If they got the score from the soft pull, then why did they need my permission to run another credit check?
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FoFai2015 wrote: I thought they got less information than that with a soft pull (I thought it was like getting a mailed Equifax or Transunion report). If they got the score from the soft pull, then why did they need my permission to run another credit check?
Last soft pull could be aged?
Soft pulls are system automated.
Banks have millions of customers, so it's not like they have a floor of staff soft pulling people's credit, seeing who qualifies for what.
The system pulls the score, and qualifies the person to the product based on that score.
Some banks may still require a hard check, some don't. But if they do, it's more than likely due to an aged soft pull.
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Sep 15, 2014
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HermanH wrote: Canada Trust (pre-TD) used to give high limits to new customers. They were my first card I applied for a month after getting my first full time job and they gave me a limit of 18,000 (that was in the 1980s so the buying power of 18,000 was higher than it is now). My second card I asked for was 4 months later and was from RBC (I wanted a Visa and a MasterCard) and they gave me a limit of 1,000 (again, 1980s dollars, but big difference between CT and RBC in the limit).

Edit: Checked inflation calculator and 18,000 credit limit from Canada Trust back then has the buying power of $34,000 today. The RBC 1,000 limit today would be about 1,800.
Yeah TD is really weird. In my 2nd year of university, they gave me a pre-approved limit increase to 20, 000 from 6, 000. I was shocked but I ended up taking it. I was in school full time and only working part time (and I did not lie about my income or anything like that).
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jamrock16 wrote: Yeah TD is really weird. In my 2nd year of university, they gave me a pre-approved limit increase to 20, 000 from 6, 000. I was shocked but I ended up taking it. I was in school full time and only working part time (and I did not lie about my income or anything like that).
That happen to me too in my early 20's judt starting to work full time. I was only making $15/hr. But they kept increasing my limits. At one point i was over $50k i unsecured debt. It was kind crazy. Yah i had anjob... but my credit was double my salary lol

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