FICO has released UK card data showing that 33 percent of credit limits are unused. Despite card issuers reducing credit limits since 2008, more than £50 billion remains “open to buy.”
This data aligns with recent reports from the FICO Benchmarking Reporting Service showing that UK cardholders are managing their credit carefully, including avoiding late payments and keeping balances well below their credit limits. The unused credit is slightly lower than 2011, when the figure stood at 34 percent. In 2008, before issuers began reducing open credit limits to reduce risk exposure, the figure stood at 39 percent.
“There are pros and cons to having a large amount of credit card limits available,” says Nigel Brayne, Senior Director of Global Business Consulting for FICO. “On the positive side, this indicates that many people have a solid ‘cushion’ in the event of financial hardship. On the negative side, card issuers must hold capital in reserve against open credit limits, so the unspent card limits also reduce the amount of capital lenders can make available to consumers for personal loans, auto loans and mortgage loans.”
Some of this available credit may be due to cardholders who have been inactive for a long period of time, perhaps because they have switched to other credit cards to make purchases, Brayne notes. “At the very least, card issuers should review inactive accounts before sending renewal cards, as there is a fraud risk if cards are delivered to out-of-date addresses.”
FICO also observed slight reductions of 4.5 percent in total credit card exposure and 2.6 percent in exposure on cards in active use, compared to 2011. A review of cash exposure — the percentage of a card’s credit limit that can be used for cash withdrawals — showed that two-thirds of accounts have a cash limit above 95 percent.