Growth is hard to come by in the credit card business, but major lenders are sticking with a smaller pool of customers with higher credit scores.
Issuers charged off mountains of bad accounts in the aftermath of the recession, ultimately breaking a historic link between joblessness and credit performance. Now, even with loss rates at longtime lows despite high unemployment and nationwide receivables stuck in a trough, portfolios have continued to shift toward borrowers with the strongest payment histories. (The following graphic shows credit score distributions over time at the Big Six. Text continues below.)
The percentage of securitized loans extended to cardholders with FICO scores above 720 increased from 2011 to 2012 at American Express (AXP), Bank of America (BAC) and Discover (DFS), adding to gains in preceding years. The share at JPMorgan Chase (JPM) retreated a bit in 2012, but the bank’s percentage of loans to cardholders with scores below 660 continued to drop as cardholders in the middle of the credit spectrum closed the gap.
Some issuers did not make disclosures about credit score compositions in certain years, but overall, credit history profiles have improved across the board since 2007.
The biggest transformation occurred at B of A, where chargeoff rates peaked at a much higher level than at competitors, and where the proportion of loans to borrowers with FICO scores above 720 increased by 15 percentage points to 52% during the time considered here.
Data on securitized receivables provides an incomplete picture of credit card businesses that include large volumes of loans that do not back bonds. But credit score information offers valuable hints about strategies at different lenders, which tend to concentrate billions of dollars of marketing expenditures on different customer segments.
Amex remains the issuer with the largest proportion of high credit score accounts, and the lowest proportion of low score accounts. It focuses on affluent customers who spend large amounts on their accounts and tend to pay off their bills every month, though it told investors at a conference this week that it would like to capture more of the borrowing that its cardholders do elsewhere.
Capital One’s securitized portfolio retains a relatively low proportion of high score accounts, though it, like its peers, has gravitated away from the low end in recent years.
The slow-moving economy makes it “hard to find ways to grow revenues,” Chief Financial Officer Gary Perlin said Monday. But the company will not stretch beyond “good, resilient credit,” and is instead likely to focus on restraining expenses.