New Citi Credit Risk Approach - High Credit limits and unused cards bad

I'm posting this separately from the Citi A/A thread because I think this is somewhat important and was not mentioned at all in the other thread.

As of yesterday, 3 out of my 4 Citi cards were closed. No inquiries in 10 months. No new accounts. No new high balances. Current debt (before closures) 63000/130000 (the 130000 is reporting, a Signature card has additional 8000). This 0% debt was accumulated last summer. It was originally roughly 50% of overall balance with several cards close to max and many at $0 balance (Chase lowered many of my CLs last summer but did not close). Citi reviewed one of my cards last November due to inactivity and closed it then but no action against other lines even with high balances.

I spoke with Credit Management today. I was told that high credit limits and $0 balances are a major red flag to them now. The agent admitted that in the past this was a good sign regarding credit. Now she specifically stated this will result in account closure. Furthermore, any activity that will result in a review of one CC will result in a review of all CCS. This appears (from what I know) to be a new behavior and contrary to the conventional wisdom of leaving old credit cards open. I was told that I should pay down debt and remove any unused credit cards in order to have my accounts reinstated.

The rationale according to the agent is that untapped high credit limits indicate the possibility of using them in the future leaving Citi liable for you debt. This is contrary to the previous theory (that she stated was also their theory) that high untapped credit limits indicated you did not need debt.

This has started at Citi and I'm sure it'll spread. I will be paying down CCS as I have high rewards on one of the closed cards (Driver's Edge) and my 0% was about to expire anyway.

I find that hard to believe. I have well over $100k in credit cards limits with Citi, over $100k in overdraft protection lines with Citi, over $1 million in margin credit with Citi, $100k flex select credit lin, a very large HELOC with Citi and a Diners Club card. I applied for PPE card 2 years ago did a 0% BT on the card and never used the card again. It has a $25k limit.

I have never owned 1 penny on my 2 overdraft line of credit or Flex Select credit line as I matter of fact I never used either in over 10 years I have had them opened. I currently owe Citi over $1 million as I am leveraging my Cash Management bonds with my Margin line of credit and I took my full HELOC limit out to buy more Mars and I have a balance of $45k on my Associated Card. Now I think I will be paying back most of the money over the next 2 weeks as rates n Mars have come down to below the rate on my HELOC but my Margin rate is still lower than what Mars are paying.

Banks are being more conservative now then before. Qualified borrowers can not still borrow money. Borrowers who they consider risky or marginal borrowers are having there credit lines reduced or closed. This is nothing new as when ever the economy takes a down turn lenders always take action against marginal or high risk borrowers in an effort to reduce there exposer.

Green for posting your experience and what you were told. While it's just a data point, it's important for those of us playing the game to pay attention to shifts in what credit analysts are telling us.

Having said that, I'm much more inclined to think that your high utilization is what put you on their radar screen. 50% overall utilization and much higher utilization on some individual lines is a clear early warning sign in this environment.

Among other things, that would also better explain why guys like dolmar don't see AA, and why I got approved for a new card this morning despite extremely high levels of available credit (but more like 15-25% showing as utilized).

Probably not great - haven't gotten it in a while. I definitely agree with DaveHanson that the closures are due to the high account balances (not entirely my fault - it was initially under 50% but with Chase dropping CLs it went over). However, I offered to pay off all those balances and the agent said that might not be enough and stated what I said in the OP. That's why I got worried and posted this message.

Edit to add: the only negative factors are the high balances. No lates, negatives, etc... Oldest account (one of the ones just closed was 6 years old)

dolmar said: I find that hard to believe. I have well over $100k in credit cards limits with Citi, over $100k in overdraft protection lines with Citi, over $1 million in margin credit with Citi, $100k flex select credit lin, a very large HELOC with Citi and a Diners Club card. I applied for PPE card 2 years ago did a 0% BT on the card and never used the card again. It has a $25k limit.
You're completely missing the point here.

First, just because they haven't gotten to you, dosn't mean they won't. Citi has millions of accounts.

Second, unless you have an annual income, as well as sepending habits to support that kind of credit exposure, I can almost guarantee you that you'll see those lines massively cut in the near future.

This is the down wave of a credit cycle. You built those credit lines during the loosest credit cycle in American history. Lenders were handing out money like Pez candy, to anyone who asked for it.

During more normal times, unsecured lines in excess of your annual income are atypical. The credit lines you claim to have, are absurd, and no responsible lender will allow that kind of unsecured and unneded exposure as we go deeper into the credit tightening period of this cycle.

i wouldn't be surprised if this will become a trend by the banks to reduce their exposures. People need to realize that we are in a new credit environment. Banks are seeking all sorts of ways to reduce their risk and reducing unsecured lines of credit is one of them,

I know several people who recently received letters from BofA to convert their credit card balances into installment loans. The banks are in a mode of rebuilding themselves so I would suggest that we all do the same too while being prudent about the process.

FWIW, I believe that long ago high levels of available credit did negatively impact credit scores. In the early 90s my job involved reviewing 50-100 credit applications per week for small businesses, so we were generally working with the personal information for the owners. The scores were not a major factor for us, but we were given some general information about how they were determined. Our credit manager also considered available credit in our "manual" review process.

This practice stuck with me too long - just a couple of years ago I closed a lot of unused credit accounts and saw a big tumble in fico scores for my wife & I - from about 800 to 750.

I agree dblevitan is just presenting one data point, it may be specific to Citi or even more specifically to his circumstances. But I think it's not a farfetched idea.

taxmantoo said: IYHTA, Dolmar is probably FWF's number one personal spender on credit cards. (yes, there are a people who spend a lot more, for business purposes) As long as he has substantial assets on deposit in banking and brokerage accounts, spends up a storm, and pays his bills, I don't expect him to experience AA.
I think the ones who have to worry are like me, spending less than $1000 most months, and holding cards with credit lines equal to two years' total credit card spending.

I personally do not spend a lot. I do run a lot of business charges via my personal cards tho.

Do you live in one of the big sub-prime trouble states? They seem to be targeting people in those states. (Fla, CA,etc)

Let me just say that I completely agree with what everyone said why my cards are being targeted. My point in posting this was not to solicit advice on them. It was to present what Citi told me had specifically changed since before.

There's also another thing which seems new - in the past a CC review trigger seemed to be only for one card (i.e. lack of activity as I had last year). Now I was told any review immediately targets all accounts at Citi, thus the reason for the cascading account closures. In fact, I'm still kind of puzzled why my cards got reviewed (and so was the agent). Basically, the chain of events seemed to be something like:

1. One card gets closed for inactivity (it had activity on it within the last year though) and security flagged to ensure I still had it. I actually saw it get closed on Citibank Online (the banking portion) a few days ago, even though they claim it was only closed on 5/1.
2. I call in on 5/1 regarding the security alert posted on citicards.com (never received a phone call alerting me of this).
3. My phone call triggers a review of the remaining accounts.

I asked the agent about this and I think she agreed that something like this happened (but as I said, she was confused as well). I'm personally going to try getting back the rewards on my Driver's Edge card and then once I have a chance to use them, I'm just closing everything at Citi. I'm also planning on sending a letter of protest to their department indicating I plan to drop them completely for what they've done (including all my banking and I've been with them for the last 18 years or so I believe). Between this fiasco, last year's CIS-SSB integration, and lack of good credit cards/interest rates it's just not worth it anymore.

To answer one person's question - I'm in CA right now, so that might be part of it.

lp244 said: dolmar said: If you have a "Margin line of credit for $1 Million" for example you have to have a minimum of $2 million in assets with Citi as they only allow you to margin up to 50%.

Wouldn't a 50% margin limit and assets of $2 million give you a $2 million margin line of credit?

Phrased differently: With $2 million in equity, and an initial margin requirement of 50%, one can buy $2 million of marginable securities.

Well either I am explaining it wrong or you are misunderstanding me.

Citi has a product called "Margin Line of Credit" it works like a HELOC. You can draw against it up to 50% of the value of your portfolio. You can just take the cash and do whatever the hell you want with it and are not required to buy more securities with it. So if your portfolio is worth $2 million you can borrow against it $1 million. Sure if you buy more securities then you could borrow more as you would be under the 50% level of your portfolio. But if draw against that "Margin Line of Credit" and use the money to pay for other things then your portfolio size did not increase thus you would still only be allowed to borrow up to 50% max.

The product "Margin Line of Credit" is different than margining securities to buy more securities as Citi calls that your "Margin Buying Power".

vaylon said:
Whats going on in the credit world is odd, to say the least.
And whats going on here in the FW World is even odder. How many regular people have hundreds of thousands of available credit spread throughout double digit amount of cards? Before I came here I had two cards with less than $50k available credit, Was more than I needed. Now like many here I have a number of cards and large amount of available credit. Also many here have managed to get far more credit than what their income justifies. So I thinks it's tough to compare what we see here to whats going on in the real World

vaylon said: I have seen several of my customers credit reports take hits because of actions by the card issuers.
some are even getting daily soft pulls from citi and AMEX, for no apparent reason.

Those soft pulls are probably doing them more good than harm.

Wouldn't need to spend 11.99 per month for B*.

dblevitan, can you determine anything in particular that might have "triggered" the review? Like an inquiry, a new or closed card on your credit report?

Psycho41 said: Just out of curiosity, what kind of interest rate does Citi charge on this Margin Line of Credit?

The rate is based on your account size.

Normal Rates:

$0-250k Prime + 75 bps
$250-500k Prime + 50 bps
$750k - 1 million Prime + 25 bps
$1 - 5 million Prime
$5 -10 million Prime - 25 bps
$10 million to $25 million Prime - 50 bps
$25 million + prime - 75 bps.

Currently if you draw against "Cash Management Bonds" the rate is Fed Funds + 50 bps. Citi always makes you margin everything else before you are allowed to margin against "Cash Management Bonds". So if you have $100k worth of stock and $900k worth of "Cash Management Bonds" and you draw only $50k then you would pay normal margin rates on that $50k but if you took $200k then the first $100k would pay normal margin rates and 2nd $100k would pay the current limited special rate of Fed Funds + 50 bps.

Normally "Cash Management Bonds are not margin able at all. So they do not add to your "Margin Line of Credit" or your buying power. Citi has been allowing people to margin them lately because some of the "Cash Management Bonds" have been illiquid so that people holding them do not get jammed up.

Good Lord, it's getting difficult to please all the CC issuers!

Well, I'll post a quick update since someone else posted. After Citi closed my accounts, Chase responded a few days later the exact same way (not surprising considering my credit limits dropped by a decent amount to put me over 50% utilization). I've since returned the borrowed money and just based on me paying back roughly $40k to Chase, Chase reopened all accounts and restored all credit limits to the original amounts. Now the only one to deal with is Citi, which I'm planning on waiting on until credit reports updated to reflect lower balances.

I decided to have another chat with Citi credit risk management to see if they could offer any further advice. The response was very similar to the first one but I did get a few more interesting facts. The rep told me to look at my FICO score and that that should give a good indication. When I pointed out that most banks supposedly used their own system, she admitted as much without admitting anything by saying that they look at the credit report and value recent behavior more than old behavior (i.e. delinquencies). She refused to answer anything over the discrepency between FICO liking high credit lines vs. her own statements that Citi does not like high credit lines. I tried to get her to give a reaction to a overall balance of $1k (say typical monthly spending) and a total limit of $100k and the only useful thing I could get out of her was that total credit limits of $75-100k start making Citi look more closely at your accounts. She also stated that income is not factored into the equation as her department does not have access to that (maybe you can argue this, maybe not). Also, not relevant to me but relevant to some other people is that she made references to Citi looking more closely at HELOCs and treating them more as credit card balances (revolving debt) than secured debt versus past treatment as secured debt (she blamed this on the poor economy and state of mortgages).

Having not gone through the review process yet, I don't know if the number I have (888-302-9291) is to the people actually doing the review or to front line people who transfer you to actual analysts. With Chase, the original number I had was to front line people who then transfered me to credit analysts (whose direct number I also have if anyone needs it). So potentially this is all BS that Citi just tries to scare people into decreasing their limits so that Citi has less risk involved - we'll see when I actually get everything reviewed at the end of the month after my CRs update.

Also, someone asked if I had any activity to trigger this. The answer is nothing besides daily spending. No new balance transfer, credit cards, or CLIs.


Edit: Changed HEL to HELOC as suggeted by DaveHanson (I'm 99% sure he's right and I was wrong, since I don't know second mortgages well). But look at my post below for further comments.

The reason that a lot of people have insanely high credit limits is because the card issuers *granted* them. I've only requested an increase twice for very specific reasons; all other increases were in the form of "congratulations...." this includes Citi, AMEX, and Chase.

I'm sure someone's asked this before, but if high limits trigger adverse events, then should consumers call the issuer and refuse the higher limit?!

unixgirl said: I'm sure someone's asked this before, but if high limits trigger adverse events, then should consumers call the issuer and refuse the higher limit?!
I wouldn't. I'll take the higher limits that BofA and AMEX seem to be OK with over cramping my utilization to make Citi happy any day. But that's just my opinion; YMMV.

I suppose this speaks to the value of having a diversified credit portfolio.

DaveHanson said: Very useful post dblevitan, green for you. Thanks for all the details.
dblevitan said: she made references to Citi looking more closely at HELs and treating them more as credit card balances (revolving debt) than secured debt versus past treatment as secured debt (she blamed this on the poor economy and state of mortgages).I assume you mean HELOC (equity line of credit that revolves), not HEL (equity installment loan, like a second mortgage)? Or did she actually lump them together?

She referred to Home Equity Lines with revolving credit but secured with your house, so you're probably right (not even having a first mortgage, I'm not very familiar with the acronyms of second mortgages). However, I have a feeling that if you bought your house a while ago and its fully maxed out due to additional mortgages that's going to cause a few red flags nowadays anyway. She kept referring to the bad economy and foreclosures as having a big impact on how much credit Citi is giving out.

dblevitan said: I don't know. The agent told me specifically that to reinstate the account they want to see low debt and low credit limit as too much credit to them now means that you'll probably use it. At least that was my experience today.

I just went through similar garbage like this this week. I had an old dividend platinum card with $1000 limit on it (opened in 2005 and unused for a year and a half) that they closed. I called and managed to get it reinstated after the rep reviewed my credit report and said i'm not doing anything that is alarming. For the record, I have about $100,000 in personal BT and $45,000 in Business BT and total credit limit on all of my cards of around $250,000. Anyways, I thought all of this was done, but the very next day my daily use driver's edge card's limit was chopped from $3000 to $1250 and I literally had $1232.00 already charged on it with scheduled bills coming up to go on it as well. I pitched a fit with them and even went so far as to explain where the BT money was and how much additional credit I had available. The rep for this issue said that all the untapped credit i had was a major red flag for them. I asked how come they weren't having a fit with my Hilton card that had a $12,000 limit on it and she said it was because that's a paired card and they don't take that into consideration (same deal with the home rebate and the upromise which is being sold soon and won't be a citi card anymore). Long story short, I had to close my dividend card and move the $1000 limit over to the driver's edge to get it somewhat back to it's old limit. Citi seems to be running scared and I pretty much chalk it up to the economy going south the way that it is along with some fear mongering to go with it.