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FICO DATA: FEWER UK STUDENT CREDIT CARD PAYMENTS OVERDUE – BUT OVERDUE BALANCES ARE RISING FAST

As university students in the UK prepare for the autumn term, new data from FICO, a leading predictive analytics and decision management software company, suggests they might be getting better at repaying their debts. The latest figures on UK credit cards from the FICO® Benchmark Reporting Service show that the percentage of student card accounts that have balances two cycles (60 days) overdue reached a two-year low in May 2014, before rising slightly in June. The percentage of two-cycle balances to total balances followed this trend as well. However, this good news is tempered by a rise in the average balances that are two cycles overdue.

Notable differences exist between established student card accounts, which have been on the books for one to five years, and veteran accounts, which have been on the books for five or more years. Specifically, the established vintage produced double the percentage of two-cycle accounts compared to veteran accounts, as well as a higher percentage of two-cycle balance to total balance – 1.42 percent compared to 0.63 percent.

“The reduction in student accounts that are 60 days overdue can be explained by an improvement in strategic collection processes and a general uplift in the economy,” said Stacey West, a Fair Isaac® Advisors business consultant who works with UK card issuers. “Financial institutions have an opportunity to improve collections results even more by tailoring strategies based on age of account and other metrics and applying adaptive -control methodologies to refine treatments.”

While these trends were positive, average two-cycle balances on student cards are rising. Having fallen from £533 in June 2012 to £521 a year later, they have now hit £733, a 40 percent increase in just one year.

“For card issuers, the increase in two-cycle balances suggests concentrating collections activities on cards with high balances,” West said. “Yet time on books is also an important factor in prioritising treatment, as two-cycle account balances for veteran student cards averaged £1,027, more than twice as much as the average for established cards, £469.”

The percentage of UK student cards that were over their credit limit rose in June for the first time since November 2012. “We recommend our clients look at their limit increase offers to ensure they are targeted at cardholders most likely to use the extra credit, and who can afford to take on extra credit,” West said.

“We also suggest reviewing the performance of accounts that go marginally overlimit, to determine whether some segment of these accounts should get limit increases, which would remove them from their out-of-order position. Regulatory compliance will ensure that issuers will focus only on consumers who can afford to take on the extra credit. This is a good area for applying champion and challenger practices to identify the appropriate account treatment.”

About FICO® Benchmark Reporting Service

The card performance figures are part of the data shared with subscribers of the FICO® Benchmark Reporting Service, which compares overall market performance in the UK cards market with individual card issuers’ performance. The data sample studied represents 26 million accounts, or about half of all credit cards issued in the UK, and comes from client reports generated by the FICO® TRIAD® Customer Manager solution in use by most UK card issuers.

Card issuers that subscribe to the FICO Benchmark Reporting Service receive a quarterly review of their portfolio compared to the industry, with 24 months’ worth of data. For greater insight, subscribers can explore the data by vintage of accounts. For information on the FICO Benchmark Reporting Service, contact Stacey West at [email protected]