Credit Card Segments

Definitions of various credit card segments differ based upon what risk levels card organizations accept.  That can even change within an organization over time, as strategies change.  For example, the following bandwidth ranges are used by R.K. Hammer and others; but not all card issuers, as different card issuers don’t have identical risk appetites, which then set their own acceptable bandwidth definitions:

Credit Card Segments in the R.K. Hammer Model

Segment FICO
Super Prime: >760
Prime: 700 – 760
Near Prime: 670 – 699
Prepaid: 650 – 669
Private Label: 640 – 649
Subprime: <640

“FICO (NYSE: FICO) is a software company based in San Jose, California and founded by Bill Fair and Earl Isaac in 1956. Its FICO score, a measure of consumer credit risk, has become a fixture of consumer lending in the United States”- Wikipedia

Naturally, other factors in one’s credit policy will drive applicants to one segment or another, not just FICO’s.  These, too, vary by organization, as do their respective cardholder pricing models.

Might certain card organizations define these credit card segments differently?  Of course.  It all depends on their view of credit risk at the time, and their present and trending loan loss numbers.  Categories and associated FICO’s can also overlap for segments within the total portfolio, just as credit policy and criteria can evolve over time, too.   Revolving credit has become both art and science.

We have some prime card issuing clients who won’t touch an applicant with less than 720 FICO.  Others who like higher risk accounts (and the fee revenue that comes with them) want all the 640 FICO’s they can get in their subprime portfolio segment.  It just depends on their strategies, objectives, risk appetite and markets.  

No one is right or wrong; whatever gets their hurdle rates achieved for satisfying IRR and EBITDA.  The key, we believe, is “Your data and your definition, consistently applied.”