Good News and Bad News on UK Student Credit Cards

As a parent, I would call this a mixed report card.

Here’s the good news: Our latest figures on UK credit cards from the FICO® Benchmark Reporting Service show that the percentage of student card accounts that have two-cycle balances reached a two-year low in May 2014, before rising slightly in June. The percentage of two-cycle balances to total balances followed this trend as well.

The risk is more pronounced for established student card accounts, which have been on the books for one to five years, than for veteran accounts, which have been on the books for five or more years. The established vintage produced double the percentage of two-cycle accounts compared to veteran accounts, as well as a higher percentage of two-cycle balance to total balance – 1.42 percent compared to 0.63 percent.

As my Fair Isaac Advisors colleague Stacey West notes, “Financial institutions have an opportunity to improve collections results even more by tailoring strategies based on age of account and other metrics and applying adaptive -control methodologies to refine treatments.”

Now, here’s the bad news: Average two-cycle balances on student cards are going up. Having fallen from £533 in June 2012 to £521 a year later, they have now hit £733, a 40 percent increase in just one year.

We also found differences here between established and veteran accounts. Two-cycle account balances for veteran student cards averaged £1,027, more than twice as much as the average for established cards, £469. Again, this suggests that card issuers should prioritize treatment based in part on vintage.

The percentage of  UK student cards that were over their credit limit also rose in June, for the first time since November 2012.

We recommend UK card issuers look at their limit increase offers to ensure they are targeted at cardholders most likely to use the extra credit, and who can afford to take on extra credit. Card issuers can also review the performance of accounts that go marginally overlimit, to determine whether some segment of these accounts should get limit increases, which would remove them from their out-of-order position.

And for regulatory compliance, issuers should focus limit increases only on consumers who can afford to take on the extra credit.

Limit increases are a good area for FICO TRIAD Customer Manager’s champion / challenger testing to identify the appropriate account treatment.

The card performance figures are part of the data shared with subscribers of the FICO® Benchmark Reporting Service, which compares overall market performance in the UK cards market with individual card issuers’ performance. For information on the FICO Benchmark Reporting Service, contact Stacey West at staceywest@fico.com.