Low FICO Score Categories Drive Loan Growth for Leading Credit Card Issuers

In a March 2017 blog post, EMI highlighted growth in credit card outstandings across the credit spectrum for leading credit card issuers.  Our recent analysis of 3Q17 10Q SEC filings for these companies shows that this trend is continuing.

The top three issuers—Bank of America, Chase, and Citigroup—reported growth across all FICO Score segments, with strongest growth coming in the lowest segment.  In the aftermath of the Financial Crisis, issuers pulled back on lending to low-prime and sub-prime consumers.  With the return to steady economic growth in recent years—and with issuers now believing that they have more robust underwriting and pricing systems—issuers are now refocusing on consumers in lower FICO Score categories.

Assets at both Capital One and Discover skew heavily towards credit card loans.  Discover generated 9% y/y rise in credit card outstandings, led by 16% rise in loans to consumers with a <600 FICO Score.  Capital One bucked the overall trend, with lower growth for its <660 FICO Score segment.  However, it should be taken into account that this segment accounts for 35% of its total credit card outstandings (vs. 15% at Chase, 16% at Citi, and 19% at Discover), so it has less scope for strong growth.

The leading regional bank card issuers—who focus on cross-selling credit cards to existing bank clients—reported a similar pattern.  SunTrust has continued its very strong growth trajectory, with overall growth of 16% led by the <620 category.  Regions followed a similar pattern, with 7% overall growth in outstandings driven by a 35% rise in the subprime (<620) segment. PNC had strong growth across the credit spectrum.  Fifth Third had strong growth in the <660 segment, but from a very low base.  The y/y decline in outstandings in its 720+ category resulted in Fifth Third overall credit card outstandings remaining unchanged.  Wells Fargo’s overall growth rate (+4% y/y) has slowed considerably in recent quarters.  It generated steady growth across most categories, with the exception of the 600-680 FICO range.

Credit Card Issuers Increase Focus on the Subprime Market

The American Banker Association’s September 2015 Credit Card Market Monitor found a 28% y/y rise in new subprime accounts, indicating that issuers are expanding their focus as they seek to grow revenues. An analysis by EMI Strategic Marketing of the FICO composition of credit card outstandings at the end of 2Q15 finds that many leading card issuers are accelerating growth in sub-prime and low-prime outstandings.

  • In recent years, Wells Fargo has reported strong y/y growth in all FICO categories.
    • In its <600 FICO category, growth has accelerated to double-digit rates in the past three quarters.
    • Its 600-639 FICO category has grown by double-digit rates in six of the past seven quarters.


  • Among national credit card issuers, Bank of America’s subprime outstandings declined 9% y/y in 2Q15, but the rate of subprime loan decline has been steadily slowing in recent quarters.  However, Citi’s subprime outstandings growth performance is less consistent, with y/y growth from 4Q13 to 2Q14 followed by declines for the past four quarters.


  • There are also mixed trends when analyzing subprime outstandings performance of regional bank card issuersPNC reported a 6% y/y decline in <620 FICO outstandings in 2Q15, compared to a rise of 1% in 1Q15.  Regions reported strong growth in <620 FICO in recent quarters (double-digit y/y rises between 2Q14 and 1Q15), but this fell to just 2% in 2Q15.  However, it should be noted that Regions’ total subprime outstandings were just $49 million, so variations in growth rates are not unexpected.  SunTrust reported double-digit y/y increases in subprime outstandings for three of the past four quarters.


EMI’s analysis also shows that subprime outstandings growth continues to trail prime and superprime outstandings growth for several reasons:

  • The large national issuers continue to deal with legacy issues following the financial crisis.
  • For issuers in general, underwriting standards continue to favor superprime consumers.
  • And even though many issuers are ramping up subprime account production, it will take some time before it translates into strong growth in subprime outstandings.



Meanwhile, an analysis of FDIC data for the 2Q15 shows strong outstandings growth for subprime credit card specialists, including Comenity (+23% y/y) and Merrick Bank (+16%). As the card industry in general increase its focus on the subprime market, it will be interesting to see if the acceleration in subprime outstandings growth among some regional bank card issuers is replicated by the large national issuers.  In addition, growth in subprime credit card outstandings should result in delinquency and charge-off rates rising from their current historically low levels.

Has the decline in card outstandings bottomed out?

A recent American Banker article discussed a credit card rebound, referring to data from the Federal Reserve that showed strong growth in revolving consumer credit in April 2014.  This supports findings in a recent EMI blog (“Four Takeaways from Credit Card Issuer 1Q14 Financials“), which found signs of an improvement in credit card outstandings for the leading issuers.

The FDIC has recently published bank data for the first quarter of 2014.  EMI’s analysis of this data provides further evidence that the decline in credit card outstandings is bottoming out.

  • Credit card outstandings fell 0.3% between end-1Q13 to end-1Q14.  This marked an improvement from a decline of 0.7% between end-2012 and end-2013.
  • The overall decline is due to the outstandings performance of the four largest issuers (Chase, Bank of America, Citi, and Capital One) who together accounted for 63% of total industry outstandings at the end of March 2014.  These four leaders reported a 2% y/y decline in outstandings.
  • Outside of these four issuers, outstandings for the rest of the industry rose 3% y/y.  Growth in outstandings is led by a number of sectors, as summarized in the following table:


Furthermore, even though the leading issuers have been dragging down overall outstandings performance for a number of years, there are indications that these declines are bottoming out, and loan portfolios are even poised to grow in the coming quarters:

  • Chase credit card outstandings were virtually unchanged between end-1Q13 and end-1Q14.  At its 2014 Investor Day, Chase reported growth in its core card loan portfolio (excluding its run-off portfolio), although its focus has been on growing volume rather than loans
  • Bank of America reported a 1% decline in card outstandings, but expects this decline in bottom out this year.  Card issuance is strong at more than 1 million new accounts in 1Q14 (compared to a quarterly average of about just over 800,000 in 2012)
  • Capital One reported that its domestic card loan portfolio fell 3% y/y in 1Q14, mainly due to its run-off portfolio.  However, it reported that it was seeing loan growth in some key consumer segments, such as transactors.  And in a recent Morgan Stanley conference, Capital One claimed that it expects loan growth in July, earlier than anticipated.

So, how can issuers best prepare for outstandings growth?  The following are three quick tips:

  1. Set realistic expectations.  Don’t expect a return to the outstandings levels that prevailed prior to the 2008 financial crisis and resulting recession.  Consumer attitudes to credit card have changed since then, as they see credit cards less as an easy source of credit (evidenced by high monthly payment rates) and more as an effective payment tool (seen in the continued strong volume growth rates)
  2. Prepare the groundwork for future growth.  Rather than driving up loan growth (and potential charge-off rates) through overly aggressive pricing offers, issuers should concentrate on the basics: providing a robust product suite with value-added features to meet cardholder spending and borrowing needs; building flexible reward programs; and setting pricing based on appropriate levels of risk and reward.
  3. Focus efforts on existing customers.  Traditionally, credit card issuers have focused their marketing on new customer acquisition.  Now, a new generation of credit card issuers (led by Wells Fargo and followed by regionals banks that have recently started to issue cards in-house) are growing their portfolios by cross-selling credit cards to existing bank clients.  In addition, simple card acquisition is not enough; issuers need to develop communications and offers to drive activation, retention, preference and increased usage, thereby optimizing customer lifetime value.