Report: Consumers Are Stockpiling Unused Credit Cards

Credit card cancellation rates are on a downswing, according to a study by Auriemma Consulting Group, possibly due to recent economic changes including rising interest rates and the fallout of the subprime market.

More than three out of four consumers have cancelled at least one general-purpose credit card at some point in their lives. However, recent card cancellation (within the past 12 months) has been steadily declining. In 2006, 15% of consumers reported that they had cancelled a card within the past year. The study shows that just 11% of consumers think that it is likely that they will cancel a credit card within the next year.

The primary reason consumers cancel their credit cards is because the card is going unused, says Megan Bramlette, ACG managing associate and managing editor of Cardbeat, a syndicated market research report published by Westbury, New York-based ACG.

"It appears that the biggest hurdle for lenders in reducing card attrition is to engage the cardholder in the card's value proposition from the onset of the relationship," Bramlette says. "Card attrition is directly linked to card usage, and it is well understood by the industry that if a consumer doesn't start using their card within the first couple of months after acquisition, it is unlikely that they will do so, and therefore, be more likely to cancel the card."

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More than half of cancelled credit cards are consumers' secondary credit cards. About 17% say that they never activated the card that they cancelled most recently, while 26% had only used their most recently cancelled card very rarely. The data was generated from a nationwide survey of 401 credit card users in May 2007.

While some consumers may think they are improving their credit scores by canceling the unused cards, the ratio of credit lines to income is only one component of credit scores, Bramlette says. "A much stronger indicator of creditworthiness is the ratio of balance to available credit--having more available credit or 'open-to-buy' is a positive indicator for good credit behavior," she tells Marketing Daily.

Savvy consumers may be hesitant to cancel cards in fear that they may not be able to find a more compelling substitute, should they need additional credit in the future, she adds.

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