Private Label Cardholders More Risky

According to a survey recently completed by the Auriemma Consulting Group, just under half of all credit and charge card carries also have a private label credit card tucked into their wallets. The data gathered revealed that those 47% of consumers with private label plastic are more apt to carry a balance from month to month, than those consumers who only carry general purpose cards.

The survey also shed light on the fact that private-label cardholders charge less each month on their cards than their general-purpose card carrying peers.

Auriemma said in their report that consumers who opt to carry multiple cards and revolve balances are unlikely to alter either of those behaviors, which led to them concludingthat, in general, private label cardholders are “a profitable population for card issuers to target for acquisition and cross-sell offers,” according to Collections Credit Risk’s website.

Most private label lines of credit are opened at the point of sale, with 23% of accounts opened online and 9% opened via applications sent to them directly in the mail, according to survey data. Online and direct mail account for 23% and 9% of new-account originations, respectively.

The issuers of private label cards tend to have less strict underwriting policies as a result of their connection to a store’s specific promotional strategy, Collections and Risk reports thatScott Strumello, an Auriemma associate, disclosed in an interview with PaymentsSource. Because of this, they are riskier and can be prone to higher losses than general purpose credit cards.

Global rating agency Fitch Ratings reported that the average charge-off rate on U.S. private-label credit cards at the end of June was 9.45%, 312 basis points higher than the 6.33% rate for general-purpose credit cards, according Collections and Risk.

General purpose credit cards offer higher maximum balance allotments than private-label cards, and Auriemma’s survey indicated that around 60% of credit cardholders who revolved a balance on their general-purpose credit cards also revolved a balance on their private-label cards, said Collections and Risk.

“We found that once cardholders begin revolving, it is typical they will carry balances often on more than one card as a way of life,” as appears in the Auriemma report.

Just under half of the respondents (49%) revealed that during the past year to four years they had declined to pay down the entirety of either type of credit card balance.

Jennifer Brown

Jennifer Brown, an external business consultant working with a Fortune 500 company, has years of experience to her credit. Despite having a busy schedule through the day, she takes time out to write articles dealing with credit cards, payday loans and other financial aspects. She has completed her Bachelor degree in Financial Services from Columbia University and has been actively involved in various activities for the betterment of society.