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By Elan Financial Services
As a sign that consumers continue to show greater confidence in the economy, credit card spending rose by nearly $16 billion during the third quarter of 2014 according to CardHub. Taking advantage of this momentum, 2015 represents an opportune time for credit unions with credit card programs to focus on growing their portfolios.
In the business of unsecured lending (credit cards in particular), underwriting is key. Effective underwriting facilitates two primary benefits: driving profitable loan growth and engaging members. In this article, we’ll focus on the following topics that contribute to a successful underwriting strategy:
Optimizing the through-the-door acceptance and first-look approval rates go a long way toward ensuring success with any credit card program. There are many best practices at this stage. Here are some of the basics:
Chart 1. Return On Assets By Risk Score Range*
*Elan Financial Services proprietary data
By using the tools mentioned above, you’ll likely find opportunities to approve a higher percentage of applications. And keep in mind, many of the larger national issuers are more than happy to serve these near-prime members that were yesterday’s denials. Look for ways to say “Yes” to a member by offering a lower limit, a different rate, or an alternative product while ensuring your staff clearly understands the remedies available and how best to present them to your members.
Once you get the card into the member’s hand, credit line and pricing strategies play key roles in maintaining the relationship. Some significant tools in making this part of your underwriting a strategy a success include:
Managing ongoing cardholder engagement and risk represents one of the most difficult elements of an underwriting strategy, given the changing nature of members’ credit profiles. Elan sees this trend in its partners’ portfolios every day. For example, here’s the three-year FICO migration trend for cardholders initially booked with a 700-780 FICO.
Chart 2. Three Year FICO Migration Of Accounts With 701-780 FICO
Each tier represents about 20 FICO points.
Supporting Members’ Ongoing Needs
Presenting the right product to successfully acquire a new card account is just the beginning. In today’s competitive market, you must also continually refresh that product set to keep members in the fold. Some things to consider around products and product graduation include:
Lifecycle and product graduation strategies, though not directly related to product underwriting, carry significant influence in the long-term credit strategy. The specific product characteristics resulting from these strategies are what your members think of first when evaluating their current credit card relationship.
While you don’t strive to be all things to all people, it’s important to recognize the opportunities you may have to be a single-source provider for products and options that your members are currently getting from outside your credit union. As the credit card product is so closely tied to your members’ individual lifestyles and life stages, it’s a challenge to ensure each member’s card remains just as relevant and well-targeted year after year as it was the day it was booked. For that reason, credit card underwriting is not just a point-in-time activity; it’s an ongoing process. There’s a rewarding market out there for those who get it right.
For almost 50 years, Elan has delivered exceptional credit card products and service to its valued credit union partners. Today, Elan helps nearly 300 credit unions get credit cards into their members’ hands, utilizing the strategies mentioned above, along with many other industry-leading trends. Year after year, our partners remain pleased with the Elan solution, evidenced by a 96%+ renewal rate. For more information, call 1-800-223-7009 or visit www.cupartnership.com.
This sponsored content article is provided to the credit union community for shared insights and knowledge from a recognized solutions provider in the industry. Please note that the views and opinions offered here do not reflect those of Callahan & Associates, and Callahan does not endorse vendors or the solutions they offer.
If you are interested in contributing an article on CreditUnions.com, please contact our Callahan Media team at firstname.lastname@example.org or 1-800-446-7453.
March 2, 2015
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