Premium Cards On The Rise As Credit Card Companies Abandon Sub Prime Card Holders

The economic crisis has really left the credit card industry hurting. With charge-off rates on the rise and a set of legislations on the way to protect sub prime credit card holders, credit card companies are turning away from what was once a most profitable consumer segment.

Just a few years earlier, credit card companies found a very lucrative segment in sub prime credit card holders. Although, at first glance this does not seem to make sense, the profits that credit card companies actually saw a lot of profits from the way sub prime credit card holders used their credit cards. Sub prime credit card holders are made up mostly of consumers who have limited finances and have a low probability of paying off their debts. The profits that credit card companies saw came not from the balance payments (which were not very likely, in any case) but from the fees and interest charges that the credit card holders would pay every month as they “revolved” their debts each month.

Revolving debts and the fees and interest charges that came with them actually became one of the highest sources of profits for credit card companies for a time and some major credit card companies actually moved to a business model more in line with exploiting this particular source of profits. Unfortunately, this particular profit source was also very vulnerable to economic fluctuations and, when the economic crisis hit, what were once profits turned to liabilities. Sub prime credit card holders faced with crippling financial losses were unable to make even the minimum monthly payments and credit card companies saw a rise in charge off rates. The losses that credit card companies saw almost resulted in bankruptcy, were it not for the financial stimulus that the government handed out.

Now that credit card companies are beginning to recover, they are doing their utmost to cover their risks and avoid the risks of sub prime credit card holders. One of their answers: premium credit cards.

Credit card companies have consistently slowed down their mailing of new-card offers more than a year ago. That pattern seems to be holding for now. However, something new has cropped up. In the recent new-card mailing offers of credit card companies, the number of premium card offers have risen, specifically by 28%. According to Comperemedia, a direct marketing tracking firm, around 118 Mastercard World and Visa Signature card advertisements were mailed were recently mailed out to consumers with excellent credit. That is an impressive increase from the 75 million premium card advertisements mailed during the previous quarter.

Among industry watchers, this is seen as a sign that the credit card markets may be getting better. Credit card companies may also be moving to a more stable credit card market which will hopefully keep away a repeat of what happened during the economic downturn.