Challenges and solutions for retail credit card portfolios

Jason Eckhardt

The retail credit card is an important part of the lending landscape, one that provides consumers with a quick and accessible line of credit while offering convenient and secure purchases in person or remotely. Unlike many retail loan classes that define the loan amount and term at origination, cardholders enter an agreement with the company that as long as they remain in good standing, they are able to use the product repeatedly and indefinitely up to their credit limit. Appropriate use of credit cards is a useful way for a cardholder to build up a credit history that may allow lower rates on mortgages or car loans.

Credit card risk is differentiated from other types of lending risk due to the high transaction volume and small transaction size, which require a very different type and frequency of underwriting compared to other consumer lending products. Credit cards also feature large off-balance-sheet credit exposures in the form of credit limits, and a large part of underwriting is ensuring these limits are commensurate with the perceived risk of the cardholder based on the latest information a company has on them. According to the Federal Reserve Bank of New York’s Q2–2020

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