By Nate Herpich
Credit card issuers continue to concentrate on those households considered to be at high risk, according to a recent study from global market research company Synovate.
The study found that during the third quarter of this year, about 363 million of 1.29 billion card offers were sent to high-risk households, defined as those using more than 30% of their available credit. During the second quarter, of 1.27 billion card offers, 347 million were sent to these households."This study offers more evidence that some credit card issuers are continuing to target these high risk households," says Travis Plunkett, legislative director of the Consumer Federation of America. "Because many families can't tap into home equity anymore, and the ability to refinance is not there, some issuers have targeted them more and more knowing families have nowhere else to turn. ... These families are on a debt treadmill and while they don't necessarily fall off, they never fully catch up either."
Plunkett says that these "ultra utilization" users are profitable for credit card issuers in the short term because the companies can charge these families higher interest rates, and that these households are also more likely to be hit with fees, as they pay late or go over their credit limit.
Ken Clayton, managing director and general counsel at the American Bankers Association disagrees, however, saying that card companies prefer responsible consumers. "Credit card companies don't make money if credit card users don't pay their bills."
And one paper says that the majority do: According to a Federal Reserve bulletin released in March of 2006, nearly three-quarters of American families have one or more credit cards. About 46% of these carry a balance, while 54% pay their outstanding balance in full monthly.
Clayton says these high-risk households can use offers found in mailers to their advantage, by looking to transfer balances to other cards with lower rates and balance transfer offers. He says new cards provide extra choices, which are helpful to consumers, and give a range of options and competitive rates.
According to the study, ultra utilization households make up 28% of all those owning credit cards. On average, they receive over 75 mailers from credit card issuers every year.
Moreover, according to Synovate's MailMonitor, 81% of these households carry a balance each month, and their average revolving balance is $9,722. Ultra Utilization households typically have lower incomes yet continue to spend.
Mailers from credit card companies are of course going to other households that are not under this highest risk heading as well. Heavy users, those using between 9% and 30% of their available credit, received 266.2 million offers in third quarter 2007. Those with average utilization (3% to 9%) received 234 million offers. Households without credit cards received just over 161 million mailed offers.
Still, the Synovate study found, of these groups, ultra utilization users were most likely to respond to these offers, at 0.8%. This, compared with 0.5% of non-credit owning households who responded to credit card mailers. In an industry that sends over 5 billion mailers, this spike among high-risk users is a significant number for credit card issuers, says Plunkett.