Evaluate credit-limit increase profitability

Business/Analytics Case: Credit Limit Increase Strategy

You are a data scientist supporting a consumer credit business.

Scenario

The company is considering a credit-limit increase program for a specific customer segment (e.g., customers with 6–12 months tenure and mid FICO). You must recommend whether to launch, and how to size/target the program.

What to do

1. Clarify the objective : Is success measured by revenue growth, profit, lower default rate, higher approval rate, retention, or a combination?
2. Build a simple P&L / unit economics model:
   • Use a profit identity such as:
     $\text{Profit} = \text{Revenue} - \text{Loss} - \text{Operational Cost}$
   • Define what counts as revenue (e.g., interest, interchange, fees) and loss (e.g., charge-offs, fraud, cost of funds).
3. Identify key levers and trade-offs (e.g., limit size, eligibility rules, APR/pricing, risk policy, model thresholding).
4. Propose an evaluation plan (data needed, segmentation, experiment design) and explain how you would sanity-check numbers with quick mental math.

Output

Provide a structured recommendation: what to launch (or not), who to target, what metrics to optimize, and how to measure incremental profit and risk.