Even if they're not planning to sell their credit card portfolios, credit unions want to keep them as attractive as possible if that day ever were to come.
And the key, according to Robert Hammer, founder and CEO of R.K. Hammer and Card Knowledge Factor, a bank card advisory firm, is to identify problems as soon as they arise.
"It is a well-accepted maxim in the card business that 'a card loan loss taken early is most always lower than if delayed later,'" he said.
Recommended For You
Here's a list of six red flags that Hammer identified as problems when reviewing a portfolio:
1. Cash advance use as a percentage of total booked loans.
Non-purchase draws against a card are high risk, according to Hammer. That's why credit unions and other financial institutions have higher interest rates attached to them. Hammer said that if less than 15% of a loan portfolio is from cash advances, that is considered to be a low risk. However, once that percentage reaches 25% or higher, it becomes a high risk.
"As with any metric, it is the trend line, not the point in time that matters most," he said.
2. Certain changes in card policies.
Not all changes are bad, according to Hammer. However, any change that loosens controls is considered bad news no matter what management presents as the rationale for it. And in particular, any changes that are made just prior to sale are considered suspect.
3. Frequent card member address changes, returned NSF payments and first payment defaults.
"Bells and whistles ought to be going off," Hammer said in regard to this particular red flag.
Some of these issues come about as a result of failing to close an account early. First payment defaults are a particularly thorny problem.
"Take the loss early, and it will be less than allowing it to roll through the delinquency queues," he said.
4. High gross card member attrition rates.
If gross attrition rates climb higher than 12%, there are problems with the card portfolio, Hammer said. Members paying down much greater than the typical 20% repayment rates, frequent calls from members inquiring about the payoff amount and active card members suddenly becoming inactive are danger signs.
"Management needs anti-attrition strategies for each of these events," according to Hammer.
5. High line utilization rates.
Hammer said it is not uncommon for a credit card portfolio to have utilization rates that reach 50%. Higher risk accounts have a tendency to be used more often. Line usage by FICO bandwidth can reflect very wide rates.
6. The 30-day delinquency bucket.
"The trends of cure rates and subsequent roll rates in the delinquency queues can be very revealing," Hammer said.
A portfolio purchaser might watch for changes early in a cycle, since total delinquency by accounts doesn't show the early risk profile needed to judge a portfolio's quality.
There are other warning signs as well, Hammer said, including numerous requests for line increases, frequent and wide loan balance swings and multiple card applications. These issues often do not show up on any report and require a deeper dive for anyone judging the quality of a portfolio.
© 2025 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
