How does this payment habit affect your credit limit?
 

Let's assume there are two people, A and B. They have exactly the same background and the same credit card, say, Chase Freedom card of the same credit limit.

They share the same spending habit and amount, several dollars here in the grocery store, several there in the gas station. However, their payment habit is different.

A checks the credit card and pay the balance off on a daily basis. B only checks the card balance and pays it off every month on the day before the statement is posted. Suppose Chase report the credit card balance once per month after the statement closes to the credit bureau. So I think the credit score of A and B should be the same from the credit bureau's perspective.

Plus: I would really appreciate that if someone here can recommend me some books or papers about how banks manage credit risks, especially credit card.

My concern is, how does the bank,in this case, the Chase bank, regard this difference? Is A considered a better customer than B? Will A be given a higher credit limit in the future by Chase if everything else except the payment habit stays the same? :confused:

Thank you. :p I'm just curious how bank decides whether or not someone is a good /lucrative customer, although in this case, A seems a little bit more lucrative than B a , not sure whether banks really factor this in when giving credit line.

Plus: I would really appreciate that if someone here can recommend me some books about credit risks management, especially about credit card risks. Thank you in advance.

Both A and B would be considered equally good customers by the bank. Not sure why you think A > B.

Because A's payment stays in the bank's accounts longer, thus contributing more interests to the bank than B.

Very nitpicky IMO. You're asking them to approve you for credit, not to nominate you for customer of the year award. The only time I could see it POSSIBLY mattering is on a recon call if you said "look, I pay my balance weekly." I still don't think they'd really care, but hey, it's a positive talking point...

To the bank, I don't think there would be any difference. The bank just sees both A&B as spending X dollars per month and paying off that X balance every month.

But, the problem might come to other banks. To the credit bureaus A, would have a zero balance with Y limit. B would have a non-zero balance with Y limit. People will argue how this affects your score, but no one can say that this does not in some way affect your score. Rotating balance definitely affects your score, whether it be positively or negatively.

Personally I would argue that B would look better as long as their monthly spending is a small (<10%) amount of their total limit. A looks like they have all this credit, but won't spend.

They are either the same or perhaps A may be seen as up to something and flagged for the number of payments. Some banks like Citi only let you pay four times per month so it must be disadvantages for them in some way to receive a high number of payments during a cycle. I remember reading once that a high number of payments during a cycle may be perceived as a trait of someone who may be in financial trouble. I don't remember what the explanation for it was. Overall, banks want you to do things that make them money and not do things that cost them money.

There was an article "Confession of a Chase Representative" on the Consumerist website a few years ago. It was not about credit approval but about what the CSRs see on their screen when you call in for customer service. Below is a snippet from that:

HOW WE RANK CARDMEMBERS

There are 3 levels of cardmembers at Chase. They are segregated as BEST, VALUABLE, or NON-PROFIT.

BEST
cardmembers make up a small minority of the people at Chase. If I talk to 100 people in a day, maybe 5 are best cardmembers. If you're a Best cardmember, pretty much anything you want to gets done. You want a late fee taken off? Done. Don't feel like paying $200 in finance charges? No problem. How do you achieve Best cardmember status? You either have to move a lot of money through the bank, (we can tell if you have a mortgage, car loan, etc thru Chase), or have a high balance that you're paying a good amount of interest on. If you generate enough fee revenue from finance charges, say $100 per month, and you want a late fee taken off, no problem, we'll take $39 off this month to make you happy and make sure that $100 monthly keeps rolling in.

VALUABLE
cardmembers make up the majority of people we talk to. Valuable basically means you pay your bills on time, and are in general a good customer. You can get a fee waived also, but not nearly as often. I don't mind waiving a late fee for you, but usually only every 6 months. Thats standard, but we can base our judgment on it all the way back to a year. And if I remove a late fee for you, dont think you're getting anything waived in the foreseeable future.

NON-PROFIT
These are the cardmembers who know what they're doing. They're the group of people that pay their bill off, in full, every month, like clockwork. They don't pay finance charges, and they're never late. They don't go over their credit line, they don't have returned payments, and they earn rewards. Which all amounts to the bank isn't making any money on your account. So if you get a late fee, you have absolutely zero chance of getting it waived. That late fee is revenue for the bank, and it uses it to offset the maintenance on your account. Maintenance includes your statements mailed to you, sending you replacement cards, dealing with customer service, and cashing out rewards point / miles / dollars. For this cardmember, if you threaten to close your account if we don't do what you want, don't be surprised to get an offer to close your account during that phone call. Why? What is the incentive to keep you? I know its pretty cold hearted, but thats exactly how it works. You do a great job on your account, but you can get punished. Hey, I don't make the rules, I just enforce them.

I have read this in several articles, but in my experience it is absolutely not true. If I establish a pattern of paying in full each and every month the fees are removed effortlessly if, for any reason, a payment has not posted on time.

Every time you charge at a merchant the bank earns a fee. A person who charges steadely generates income to the bank. A person who has a long consistent record of paying on time is usually a minimal credit risk. Result from the banks perspective, income a minimal risk.
I had a client who was generating $15K overdraft fees on his checking account. Obviously a very profitable account for the bank. However, they closed his checking account and terminated his relationship with the bank. Reason, profitable yes, but perceived risk was high.

Thank you and all the other nice people who answered me. But I'm curious that in this case in talked about, why didn't the bank reject the huge overdraft initially when it happened?

I would imagine the factors mentioned by mia and kayjay are also taken into account in addition to the factors outlined in the post describing best, valuable, and non-profit customers.

So, what is truly the best customer? One that charges a LOT onto a card, pays his annual fees, and ALMOST always pays the balance in full. The bank gets lots of transaction volume, some interest revenue, and gets their annual fee, but still doesn't consider the client high risk.

And who is the worst customer? A churner, or someone who gets an interest free promo on a rewards card (like the freedom card that sometimes offers and interest free promo) and pays the balance as slowly as possible without incurring a cent of interest at the end of the trial period.

This is why I try to do things that I think will make the banks like me more. I have some cards I'm willing to pay the fee on. I don't call every year for a retention bonus. And, if there is some discrepancy (so long as it wasn't very large) I won't call to complain about miscalculation of points. I ALWAYS pay my balance in full, so I don't pay any interest, but I try to do some things that push be closer to that "best" category. Maybe it doesn't exist and my efforts are a waste of time, money, points, etc - but I think having solid long-term relationships with creditors will pay off in the end.

As to the original question, I think that the distinction between person "A" and person "B" is fairly negligible but I do think that paying your balance daily might look suspicious or like you're really concerned about how much you're spending = money problems, credit risk, etc. In short, don't do anything to draw attention to yourself - including making an excessive number of payments.

IMHO the credit scoring model doesnt really account for payment in full every month. It is as if the risk model thinks that one day you just stop paying therefore payment in full at the end of the month doesnt carry enough weight. If you pay before billing cutoff, you show little or no utilization which helps your score greatly. We just have to play things as they are.

Interesting because I just checked my monthly credit scores with Citi Identity monitor. Last month I had balances on 3/11 Credit cards. This time it was 5/11 and my scores dropped by an average of 10 points.

From now on I'm going to ensure that no more than 1 card is reported with a balance. In other words, no activity close to the statement and full pay before statement due date. With chase it is hard to achieve zero balance as they allow you to pay only the outstanding balance. Outstanding balance doesn't include pending transactions so despite best efforts I have ended up with a balance on the card (<$50). I had $10 and $14 on the other cards and it still managed to ding my score by 10 points.

Then again, I'm paying so much attention because I am looking to apply for some more cards after Nov, when some inquiries drop off.

I have under 10yrs history with chase, but its enough to have been through the small (almost inconsquential) new post-2008 credit regulations imposed on the banking industry. Throughout my history with them, no late fees, not a cent of interest, they make money only on my card use transactions not off my account balances.

They waive my annual fees, they indulge me in my special requests, they've always been very accomodating and helpful.

So whatever comes up on 'my screen' must be "dead-beat who we like".

I think this is an incorrect assumption. I PURPOSELY pre-pay my account multiple times in any billing period. I pay off my balances before the statement generates, or I leave a balance of 1% or less of CU ON PURPOSE across some cards. I stress on purpose because I am purposely gaming the algorythms to increase/maintain my high credit scores.

RISK, to my understanding, is the new big factor. People dont know the exact formula, many understand it to be a combination of your credit utilization, the amount of credit inquiries, credit requests, average balances, highest balance achieved, late payments, judgements and filings, etc.

But what's drawn in a larger focus than I noticed pre junk-mortgage selloff is an increase to the amount of spend and balance to stated income. What you put as your income on your app has now drawn much further weight than before. Banks would do a credit pull, see your scores, history, utilization, but the app income amount now is playing a larger role into their formula.

I dont know what other chase you bank with but all my accounts allow the option to pay the statement balance, outstanding balance, or some other amount. You simply cannot do it every day, it must be every 3 days or so. If you want an absolute zero blance, you need to control your spending to time so that all transactions and your final payment post(s) by the statement close date. This is your neglect, not the banks.

Dropping 10 points in 2months? You have some other outlining factor going on there... Like apply for new cards, insurance inquiries, or a forgotten neglect? You are viewing your true fico scores, and not the fako generated scores like credit sesame, etc?

Easy way to ensure no balances (or even better, a balance on only one card)
 

In regards to the points above about Chase only letting you pay the statement or outstanding balance. . .
Just use a bill-payment service (my credit union offers it for free since I have auto-deposit with them) to send in extra payments to your Chase and other accounts. I keep a credit balance on all of my accounts except one, which I typically keep at about 1% utilization. That keeps my credit score high. . .and this has been confirmed by many people at the myfico message boards and other places. . . good luck!

And what have we learned from this thread? That we really know nothing aside of the things we do! Pay your balances by the due date, only pay an annual fee when it makes sense to do so (for a free hotel night, or 10,000 renewal miles, for example) and keep low UR. In most cases you will be fine whether you pay your balance 10 times a month or only once. And I think that Chase rep is completely full of it. Zero chance my a**! There are considerable policy differences among Chase credit cards. Over the years, I have had my late charges dropped more than once with many Chase cards, but never with Chase Amazon! Go figure! And yes, I am totally the kind of customer they consider a freeloader.

OT:

100countrygoal, your NK pics are stunning! It's too bad they don't go out much. Those choreographers would make killing with the Cirque du Soleil. Thanks.

End of OT