Credit scores and consumer spending habits have changed since the beginning of—and even throughout—the COVID-19 pandemic. FICO scores are up, credit card balances and delinquencies are down, and many consumers are refinancing or paying down debt thanks to low interest rates, stimulus money, and assistance programs.
A transmissible virus has made credit cards and digital payments more appealing while the use of cash has dropped significantly. According to PEW, about 3 in 10 Americans said they make no purchases with cash in a typical week. Over the past decade online shopping has steadily been increasing and now represents over 13% of total retail sales. This trend is expected to continue further pushing credit card usage over cash.
As we head into the holiday shopping season, access to credit will become a factor in consumer spending. Deloitte, KPMG, and other analysts expect 2021 holiday season retail sales to increase between 7% to 9% compared to 2020—almost double the retail industry’s historical annual growth rate.
While it is important for credit unions to continue to attract new credit card customers, it is also important to keep the ones you have. Acquiring a new member costs anywhere from five to 25 times more than retaining an existing one. There can be additional value in extending credit lines to the members with existing credit card accounts proactively to keep your card top of wallet.
Typically, when consumers want additional credit, they can either 1) request a credit limit increase, or 2) open a new credit card account. By increasing credit lines proactively, credit unions can grant members the purchasing power they need without the friction of submitting a request or going to another institution for a new card. For qualified borrowers, an increased credit card credit line can decrease credit utilization, improve their credit scores, and increase purchasing power.
When extending credit line increases, credit unions have to look at the members’ complete financial profile. Factors to consider include:
- Payment history
- Debt to income percentage
- Borrower risk profile
- Credit score changes
- Ability to repay
2020 Analytics offers a turnkey credit line increase program. We take your cardholder data and supplement that data with attributes we obtain direct from the credit bureau. We take care of regulatory and compliance issues including the ability to repay to comply with Reg Z. Using our proprietary model, we identify members at your credit union that qualify for a credit line increase. All that is left for you is to notify your qualified cardholders of the good news. Call Report data shows credit unions that implemented a proactive credit line increase powered by 2020 Analytics saw a 29.2% growth in their credit card portfolio—twice as fast as other credit unions.
Proactive credit limit increases are a win win for members and credit unions alike. They are one of the easiest ways to capture additional value from current members and give those members access to the additional credit they want and need.
Black Friday is just around the corner. Consumers are going to spend, and proactive credit line increases can help your members spend with you.
See how 2020 Analytics’ Proactive Credit Card Credit Line (CLIP) services could benefit your credit union. Start your analysis now to give your members the spending power in time for the holiday shopping season. Contact us today.