Today we released new data on UK card trends, and if you read between the lines you can see some opportunities for card issuers. As with the data last week on static delinquencies, this reporting comes from the team of consultants that works with UK card issuers using FICO TRIAD Customer Manager, the world’s leading credit account management system.
Looking at November 2012 data, we find that 33% of credit limits are unused. The unused credit is slightly lower than 2011, when the figure stood at 34%. In 2008, before issuers began reducing open credit limits to reduce risk exposure, the figure stood at 39%.
That’s still a lot of open-to-buy credit — more than £50 billion — that card issuers are holding capital reserves against. Every issuer should examine whether it’s the right amount on a customer-level basis. And some of this available credit may be due to inactive cardholders — do you need this credit to be there? At the very least, make sure you have the right address for these cardholders before sending them a reissued card, to reduce your fraud risk. We also observed slight reductions of 4.5% in total credit card exposure and 2.6% in exposure on cards in active use, compared to 2011.
A review of cash exposure showed that two-third of accounts have a cash limit above 95%. As my colleague Nigel Brayne noted in our news release, this indicates that most card issuers are not varying cash limits by account risk. Segmenting your cash limits by risk is the preferred approach, and is easily done using FICO TRIAD version 8 and above.
Unused credit and high cash limits are two issues every risk manager should evaluate periodically. If you need any assistance with benchmarking or strategies for improving performance, your FICO team is ready to assist you.