Contributed by: David Daukus
As the economy recovers from the recession, consumers are becoming more responsible with their credit card usage; credit card debts have not increased and delinquency rates have declined. Delinquency rates as a percentage of balances continue to decline with the short term 30-59 DPD period, now at 0.9%. With mixed results, where is the profit opportunity?
Further studies from Experian-Oliver Wyman state that the average bankcard balance per consumer remained relatively flat at $4,170, but the highest credit tiers (using VantageScore® credit score A and B segments) saw average balances increase to $2,422 and $3,208, respectively. It’s time to focus on what you have—your current portfolio—and specifically how to:
- Increase credit card usage in the prime segments
- Assign the right lines to your cardholders
- Understand who has the ‘right’ spend
Risk score alone doesn’t provide the most accurate insight into consumer accounts. You need to dig deeper into individual accounts to uncover behavioral trends to get the critical information needed to grow your portfolio:
Leading financial institutions are looking at consumer payment history, such as balance and utilization changes. These capture a consumer’s credit situation more accurately than a point in time view. When basic principles are applied to credit data, different consumer behaviors become evident and can be integrated into client strategies. For example, if two consumers have the same VantageScore® credit score, credit card balances, and payment status, does that mean they have the same current credit status? Not necessarily so. By looking at their payment history, you can determine which direction each is heading. Are they increasing their debt or are they paying down their debt? These differences reveal their riskiness and credit needs. Therefore, with payment history added to the mix, you can more accurately allocate credit lines between consumers and simultaneously reduce risk exposure.
Spend is another important metric to evaluate to help grow your portfolio. How do you know if a consumer uses primary a credit card when making purchases? Wouldn’t you want to know the right amount of credit to provide based on the consumer’s need? Insight into consumer spending levels provides a unique understanding of a consumer’s credit needs. Knowing spend allows lenders to provide necessary high lines to the limited population of very high spenders, while reducing overall exposure by providing lower lines to low spenders. Spend data also reveals wallet share—knowing the total spend of your cardholder allows you to calculate their external spend. With wallet share data, you can capture more spend by adjusting credit lines or rewards that will entice consumers to spend more using your card.
Once you have a more complete picture of a consumer, adjusting lines of credit and making the right offer is much easier. Take some of the risk out of managing your existing customers and finding new ones.
What behavioral data have you found most beneficial in making lending decisions?