Some signs suggest a general chill in consumer credit card lending may be thawing as the economy improves. However, the American Bankers Association’s chief economist says issuers are likely to keep a tight rein on credit lines.
One signal of the returning demand for credit is FICO’s introduction this month of a product designed to help issuers begin to increase customers’ credit lines after sharply reducing them last year in response to the recession.
The Minneapolis-based credit-score company, formerly Fair Isaac & Co., on July 9 introduced a “credit-line optimization” tool within its Triad Customer Manager analytics software program designed to help consumer card issuers offset the risk of increasing consumers’ credit lines. The tool helps issuers “make the best use of limited exposure” by targeting opportunities where certain customers may benefit from increased credit lines.
Many card issuers within the past year “reduced line increases or abandoned them altogether,” David Lightfoot, FICO vice president for product management, said in a statement. “Our experience shows that analytically determining credit lines can boost revenue growth even in today’s economy,” he said, noting FICO’s new product addresses new regulations requiring customers to “opt in” to credit-line increases.
However, though issuers are looking to stimulate credit card use among worthy borrowers as the economy improves, most are still reluctant to loosen credit lines, James Chessen, the American Bankers Association’s chief economist, tells PaymentsSource. “The widespread job losses and overall decline of wealth that led to the recession have caused lenders to remain extremely cautious” in extending consumers’ credit lines, he says.
As card delinquency and charge-off rates continue to decline, credit card portfolio performance is improving. But those trends do not suggest issuers are poised to loosen underwriting standards, Chessen notes.
“Lenders might be looking at a variety of new products and tools to enhance their risk management, but most are being very prudent and deliberate in extending further credit in an economy that’s still weak,” he says.
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