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Discover Earnings: High FICO Customers Spending More, Low FICO Customers Spending Less

Dec. 17, 2010
Credit Cards
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Discover reported their fiscal fourth quarter earnings yesterday. One interesting observation from the CEO:

“We’ve seen an acceleration of spending on revolvers [credit card accounts]… Starting in September and that’s continued till now. Most of our spending growth is from customers who have over 760 FICO score and, in fact, if you look at the under 700 FICO score customers the sales in that group is continuing to decline.” – David Nelms, CEO, Discover

While this statement is effectively financial nirvana for credit card companies, it reinforces the prevailing theme over the course of 2010. Credit card companies are doing just fine, because the unemployed people have already defaulted. Meanwhile, those who are on sound financial footing are starting to recover, so card companies don’t care about the rest – and have no intention of extending them credit.

In Nelms’s prepared remarks, he discusses why he doesn’t really care about prevailing high unemployment rates, only new unemployment. It only matters that existing customers don’t teeter off the edge, as long as Discover doesn’t issue new cards to people with poor credit:

“It should be apparent by now that our losses are no longer being driven principally by the total unemployment rate which remains stubbornly high, but by more recent trends in jobless claims and our bankruptcy receipts, both of which are showing improvement.”

Similar sentiments have been echoed by just about every credit card company CEO over the past few months. And so we continue to live the tale of two cities. The employed are recovering, and everyone else seems, for now, to be left behind in the dust.