Do you have a credit card that you use for shopping? Are your needs and wants to pile up, and you also want to increase your credit card limit? Listen to your host Merrill Chandler as he explains why certain credit cards will never get a limit increase. You don’t just get that quickly because they pull review scores from your previous transactions and purchases. Tune in to learn how mortgages are not loans and what type of investments suit one person.
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Why Certain Credit Cards Will Never Get A Limit Increase
I am Morpheus. You are Neo, and we are here to all of us level up our understanding of how this game is being played, how the funding game works, and what we can do to navigate the sometimes treacherous shoals that are associated with the funding and the funding landmines that we must avoid. In this episode, we are going to be talking about a little-known use of review scores, how review scores are used and soft polls compared to hard polls, and exactly why some credit cards will never get a credit limit increase even if you have an 800-plus credit profile. We will see on the inside.
We are going to do a deeper dive here. We have been talking about all kinds of things going on in the marketplace, lender evolutions, and what’s going on with buy now, pay later. A lot of fascinating evolutions in the lender space, we had questions come in, and I wanted to make sure that I had an episode on this particular topic.
We had a client share their frustration because they had a Capital One credit card that was a $500 limit but the Capital One was never going anywhere and one customer service rep even said, “This credit card is never going to get its limit rate.” It was $500 for over ten years. Why? We spend all of our time, energy, and resources at Get Fundable! as part of this expansion of our fundability and getting more and higher approvals.
We take great pride in getting those automatic limit increases. Why isn’t Capital One certain of their credit cards? Why aren’t they giving credit limit increases? Why aren’t you getting automatic ones, and with an 800 plus credit score, why can’t you even get a manual increase in the limit? I’m going to take us back to our episodes where we talk about mortgages.
As a review, a mortgage is to create an opportunity. Big mortgage banks or mortgage bankers give a mortgage broker house, let’s say, $100 million in a credit line. They fill up these credit lines with closed loans. They use the credit line. They fund a real estate loan, pay off the seller, the buyer gets the new mortgage and gets the property, and that note uses the money from the credit line. Let’s say you have $100 million deals and 100 $1 million funding. That 100 loan closings would fill up this $100 million line.
They take that entire credit line. They bundle it and turn it into a security and then sell all the payments coming in from those 100 loans. They sell those payments to pension funds and long-term investors. That’s called the secondary market. The primary or the retail market is you, and I go in, we get $1 million property. We finance with our good name and our fundability. With our positive banking relationships and reputation, we get a $1 million loan, and that loan is then bundled and sold to investors on the secondary market.
Mortgages are not a loan. There are more retail and marketing organizations like Capital One. Discover, and American Express has been known to do this but not as much as Capital One. What happens is that Capital One for decades, I have been aware of this practice for many years but Capital One will offer a credit line.
Let’s say Capital One sells one million $10,000 credit lines. They fill up an entire credit line with these credit card instruments. Instead of a mortgage, think of now, you got a $500, $1,000 or $10,000 credit limit. They will never grow of those particular instruments, get bundled together, and sold to the secondary market to long-term investors who are getting 18% on the use of these cards.
18% to 22% is what Capital One is charging and servicing. Like mortgage servicers, they send those payments to the institutions that made them into securities and long-term investors. Instead of getting 2%, 3%, and 4% on their money for mortgages, they are getting 18%, 20% or 22% on their money because these credit cards or credit lines have been sold.If you want to increase your credit card limit, they’re going to pull a review score first. Click To Tweet
It’s because it has now been converted from a credit instrument into a security, and the security now collects money from the use of that credit card. The limit cannot be raised because it’s in fixed security. Especially Capital One, if you’ve ever run into a circumstance where they will not raise your credit limit, this is what’s happening behind the scenes.
We have mortgages going on, and credit cards, credit lines, or credit limits are going through the same sales process and being sold into the secondary markets. Those secondary markets are then turning them into securities. Imagine you are an investor. If you want a high ROI, find Capital One credit instruments that are returning because after the premiums and everything, 15% to 20%. That is a high ROI.
There are other reasons why you may not get credit limit increases. It’s all fine and good. Let’s review FICO review scores. When you call up and say, “I would like to raise my credit limit.” They are going to pull a review score first and look to see if that review score is higher or lower than what they have from your last hard poll.
Let’s say the account is three years old. Your last hard poll may be from three years ago but that’s where they got all of the borrow behaviors and all of the internal performance data from your credit profile. No matter how old it was or the recent hard poll was, they pull that data. Let’s have the data over here. They then are going to compare your soft polls.
Soft polls don’t count against you. You will notice American Express and Capital One does this. The big marketing firms. The depository banks don’t do this as much but American Express, Capital One, and Discover all ping with soft polls to compare and see how your review scores stack up against your original score used for your application.
If it’s higher, they will evaluate giving you a small increase. If it’s lower, they reject you. They will say, “We are not going to give you a small increase.” If your review scores are significantly lower, then they may contract or lower the limit or close the account. That review score is used to measure against that last hard inquiry, whether it was months or years ago.
Once that occurs, let’s say you have a $10,000 limit, and they are saying, “We will give you $11,000, and we will give you $1,000 more using your soft poll.” It’s because there’s a differential between the last hard pole, and let’s say, your new review score is higher. They will say, “We will give you $1,000.” If you do a hard poll and your hard poll goes up, that’s why they are able to give you a 3, 5, or even double your credit limit because you have a significantly more fundable credit score. Remember, the score is in charge of rate, term, and amount.
That’s the difference when you are going to raise your limits. They will give you a little tiny bit for a soft poll to compare it against the old score because they haven’t got the new data yet. They are comparing. “It’s higher than the last one.” They will give you a little bit. If you get a new hard poll and it’s higher, they are going to give you significantly higher approvals if it’s a significantly higher baseline score coming with a new application.
Those two things are brought together in establishing what the value you bring as a customer and as a credit user or cardholder for each of these institutions is. I’m your guide, your Morpheus, to awakening to the truth behind the lies we have been told so that you can make the best and most powerful decisions for your future credit use. We will see you next time.