Our analysis of UK credit cards shows that the average cardholder had 32.46% of unused exposure in February 2014, compared to 33.38% at the same time the previous year. This slight decrease puts unused exposure at around £41 billion.
This slight change masks a larger fall since 2008, when the average unused exposure was 38.89%. This fall can be attributed to the limit decrease campaigns on never-active accounts, long-term inactives and accounts with low utilization.
The new numbers show there is scope for issuers to decrease limits further, in order to gain further benefit from a reduction in capital requirements. More targeted initial limit allocation could also influence this. Ongoing offers should be based on data indicating the likelihood of take-up on any extra credit, as well as risk and profit metrics. The new FCA regulations will help to ensure any line increase offers take affordability into consideration and decreases will manage the existing limits.
FICO’s consultants also looked at the new data by vintage. Perhaps surprisingly, it is not the most mature (Veteran, 5+ years on books) accounts which have the highest ratio of unused credit, it is the Established accounts (1-5 years on book) with 39.38%. The annual decrease for this segment could be due to accounts maturing and moving into the Veteran category.
New account unused exposure has decreased from 31.5% to 25.61%. Average new lines have remained steady over the year, so this may be due to the increase of 0% balance transfer offers in the market. As the promotional periods increase, the results for Established accounts will be impacted. Only 28% of clients vary their cash limits below 95% of the main limit. Issuers may want to consider applying an appropriate cash limit at the account level rather than the product level (terms and conditions allowing) based on risk and profit metrics.
Thanks to Stacey West of Fair Isaac Advisors for this information. If you are a UK card issuer and would like to benchmark your portfolio against the market, contact Stacey about the FICO Benchmark Reporting Service: firstname.lastname@example.org.