Good and Bad Signs for UK Credit Card Performance

FICO's latest data on the performance of UK credit cards shows a difference between mature and new accounts that card issuers would be well advised to note.

In June, the percentage of current (non-delinquent) accounts that have been on the books for 12 or more months reached its highest value over the last two years. In addition, the average current balance among mature accounts was £49 higher than in June 2014, and £106 higher than in June 2013.

But there were also warning signs for new accounts, those that are less than a year old:

• The percentage of new accounts that are two cycles delinquent has risen 14 percent since December 2014.
• Average delinquent balances have risen 7.5 percent year on year.
• The average amount overlimit for new accounts reached its highest point in more than two years — this figure has been rising since January 2015.
• The percentage of new accounts that are overlimit is also increasing.

The market is seeing a lot of activity to recruit new accounts, with the focus on balance transfer offers only now starting to shift to purchase-led offers. Card issuers should carry out further analysis on the newly booked population to pre-empt future delinquencies.

Here are three steps I suggest issuers take for new accounts:

1. Review application processes and scorecards to make sure they have been aligned with more recent growth objectives, especially if the change in product focus attracts a different account profile.
2. Review the initial credit limits to make sure that the level of unused exposure does not increase and negatively impact the Basel Capital Requirements, and to avoid higher future losses.
3. Review management of current, overlimit accounts to determine whether special treatment is required on this vintage, as well as checking collections processes to ascertain whether to focus on new accounts at specific cycles. There may be warning signs that can be translated into pre-collections activity.

To learn more about our cards benchmarking service, or FICO's new Risk Benchmarking Service which forms part of the Fair Isaac Advisors P&L Insight Suite, please contact me at staceywest@fico.com.