Top of the Class Assessing the Credit Performance of Graduates from Secured Credit Card Programs

Peter Psathas

No DP24-02, Consumer Finance Institute discussion papers from Federal Reserve Bank of Philadelphia

Abstract: Secured credit cards, whose limit is fully or partially collateralized by a bank deposit, serve as viable options for consumers seeking to build new credit or to repair a damaged credit history. Demonstrated repayment behavior over time can qualify secured cardholders for “graduation” to a standard unsecured credit card. This paper uses anonymized account-level data to examine how secured card borrowers perform after graduation by matching samples of graduates with similar groups of borrowers who open new unsecured cards without having graduated from a secured card program. Using a regression model, we compare the two groups’ credit usage and repayment behavior over time and assess the success of secured card graduates in establishing or rebuilding credit. Overall, we find that many secured card graduates succeed in demonstrating long-term responsible credit usage and are generally not riskier in their credit use than their comparison group.

Keywords: credit cards; secured credit cards; account graduation (search for similar items in EconPapers)
JEL-codes: D14 G21 (search for similar items in EconPapers)
Pages: 18
Date: 2024-11-26
New Economics Papers: this item is included in nep-his and nep-pay
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.philadelphiafed.org/-/media/frbp/asset ... n-papers/dp24-02.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedpdp:99210

Ordering information: This working paper can be ordered from
phil.library.mailbox@phil.frb.org

DOI: 10.21799/frbp.dp.2024.02

Access Statistics for this paper

More papers in Consumer Finance Institute discussion papers from Federal Reserve Bank of Philadelphia Contact information at EDIRC.
Bibliographic data for series maintained by Beth Paul (beth.paul@phil.frb.org).