The Secured Credit Card Market

31 Pages Posted: 2 Nov 2016

See all articles by Larry Santucci

Larry Santucci

Federal Reserve Bank of Philadelphia

Date Written: 2016-11-01

Abstract

In this paper, we present a brief exposition of the history of the secured credit card, beginning with its origins in California in the 1970s. We present a series of stylized facts based on a December 2015 cross section of the secured card market. We find that most secured cards require an annual fee, tend not to have promotional offers or rewards, and often have higher purchase annual percentage rates than their unsecured counterparts. We also find that the percentage of secured card accounts in a delinquency status is more than double that of unsecured cards and that far fewer secured cards are inactive compared with unsecured cards. In addition, the annual income of secured card consumers is about 43 percent lower than unsecured card consumers. Last, we examine how the credit scores of consumers opening a secured card account change during the first two years of account history. We find that keeping a secured card account open is correlated with improved creditworthiness, while closing an account, either in good standing or in default, is correlated with significantly reduced creditworthiness.

Keywords: secured, credit cards

JEL Classification: D14

Suggested Citation

Santucci, Larry, The Secured Credit Card Market (2016-11-01). FRB of Philadelphia Payment Cards Center Discussion Paper No. 16-3. Available at SSRN: https://ssrn.com/abstract=2862961

Larry Santucci (Contact Author)

Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States
2155746014 (Phone)

HOME PAGE: http://https://philadelphiafed.org/consumer-finance-institute/researchers/larry-santucci

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