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A new group of consumers has fallen into the underbanked demographic because they lack access to the credit they once had. Card issuers wanting to serve the newly underbanked should take into consideration the factors that led to loss of credit access and lower credit scores, says Jennifer Tescher, director of the Center for Financial Services Innovation, a nonprofit affiliate of Chicago-based ShoreBank Corp. Some consumers lost credit access after unwisely accruing unwieldy debts they no longer could pay because of job loss, falling property values, medical expenses or a combination of those factors, she says. Other consumers "haven't done a darn thing wrong. It's just that the credit standards have tightened," Tescher says. As many issuers have lowered individuals' credit limits on nondelinquent cards because of tighter underwriting standards or lack of card use, those lower credit ceilings have hurt many consumers' credit scores, which makes getting access to additional credit more difficult, Tescher notes. "The person who has gotten their credit line whacked is very different from the person who has a lot of debt and needs to pay it down," she says. "Lenders are going to have to look beyond FICO scores to get loans flowing again." Banks have the data, which they often use for cross-selling other products, to determine the situations that led to lower credit scores and loss of credit access, Tescher adds. The institutions can build future loyalty by helping customers through difficult times now, whether by unfreezing access to traditional credit cards for creditworthy borrowers or by offering tools such as secured credit cards or cards with very low credit limits to help rehabilitate delinquent borrowers (CardLine 1/12). "Banks know how to do this," Tescher says. "It's not very sexy, but it's appropriate for the times."
