It’s no secret that consumer budgets are starting to strain as they deal with inflation and rising costs of living. Credit balances are growing and according to a recent survey, only 40% of consumers reported feeling certain that they could come up with $2,000 in an emergency for the following month. In times of need, consumers tend to rely on short-term forms of credit such as card products, which, if not managed well, can lead to long-term problems.
For customers with poor credit history, thin-file, or even no credit history, secured card products offer an opportunity to develop a credit score. For those unfamiliar with “secured cards,” they are revolving credit cards that require a certain amount of collateral to be held by the bank to establish the credit line. This collateral is usually deposited in a savings account to be obtained by the customer only after graduating from the card into a higher-level card product. Graduation typically takes the form of an offer to an unsecured credit card product.
Most of the largest issuers in the U.S. have at least one secured card. These programs are an important part of the market and support efforts for establishing access to credit. In a recent press release, KeyBank just unveiled the metrics behind their Secured Credit Card program’s successes:
- 46% of KeyBank Secured Credit Card originated with no FICO score.
- 54% were low FICO score at origination.
KeyBank reported that 42,000 customers have used the Secured Credit Card program and more than 20,000 have graduated from the program since its inception in 2019. The company reported that 95% of cardholders graduated within 24 months. The improvements to FICO scores were documented as follows:
- No FICO Score at Origination: Graduation average of FICO score 728
- With a FICO Score at Origination: +63 point improvement average at graduation
These are significant improvements that will excel cardholders into new forms of credit access, such as travel & rewards card products, installment loans, and mortgages. For the issuer, the secured card, which is often paired with a savings account, allows ample opportunity to cross sell the customer into new product lines. For more information on secured cards, a recent report by Javelin Strategy & Research examines the importance of these products.
Overview by Ben Danner, Senior Research Analyst at Javelin Strategy & Research.
