A consultant in credit card lending suggested card issuers look to consumers with so-called "near prime" credit scores rather than trying to win the business of borrowers with the very highest credit scores.
"Everyone would love a portfolio of all Primes and Super Primes, but there are only so many of those to go around," Bob Hammer, founder and CEO at R.K. Hammer and Card Knowledge Factory, wrote in a paper released Friday that highlighted the possibilities that near prime cards represent.
Hammer stressed that each credit card lender would have to decide for themselves where to draw the line. However, generally, near prime borrowers have scores between 670 and 690 with payments no more than 30 days past due in the last year.
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The near prime segment also has better quality than the subprime segment and pays interest slightly higher than prime accounts but not as high as subprime, Hammer observed.
Near prime accounts have the capabilities to "graduate" to become prime accounts and need different management, he added.
For example, near prime accounts, moving closer to becoming prime accounts, should be graduated to prime accounts fairly quickly to prevent them from being captured by another lender, he explained.
"Once their monthly FICO's have crossed the threshold for Prime, however, any given issuer may define that term internally, they will naturally begin to receive prime account offers from other issuers, too." Hammer wrote.
He added, "Not to graduate these accounts then to the higher level of account status creates a negative self-fulfilling prophesy; they will simply and inevitably attrite to another issuer who gives them a better value proposition that they now deserve."
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