Card issuers are caught between unprecedented levels of default and delinquency and a changing regulatory landscape. Facing reduced levels of spending even from good customers, they are understandably anxious. In the absence of well-tested best practices, many are choosing to retreat into traditional defensive postures — adopting highly conservative strategies for managing risk, such as setting low initial lines for customers with lower FICO scores and aggressively repricing when there is a suspicion of possible default.

While these approaches may seem sensible, and while they have been hallowed by tradition, it's not clear whether they actually serve the bank's long-term interest or long-term profit. It could well be the case that the strategy that seems the safest is costing the bank money in lost revenue. A credit line of $2,000 for someone with a low FICO score may indeed limit the bank's exposure, but it may not generate much revenue from a customer who probably has little access to other forms of credit.

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