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The current credit crisis reveals some drivers quite different from those responsible for previous economic slowdowns, producing consumer behavior patterns and credit defaults unlike those seen before, says Ramsey El-Assal, senior management consultant at MasterCard Advisors.

As a result, the traditional consumer payment hierarchy, which placed payment of mortgages and other secured debt above unsecured credit card debt, has changed in some consumer segments – presenting new challenges to issuers seeking to mitigate their risks, he says.

Credit card issuers need to take a proactive approach to risk assessment as overextended cardholders increasingly choose to "selectively default" on certain loans - including sacrificing certain credit cards, he says. To manage that rising risk, issuers need to segment accounts by FICO score and "spend/payment" history, then examine cardholders' total categories and quantities of debt to identify at-risk individuals.

"This analytical approach should be coupled with outbound communication by telephone or other channel because only the customer can provide the full context and background that will enable issuers to evaluate the feasibility of remedies on a case-by-case basis," he says. "While customers who already have defaulted are understandably cautious when dealing with collection agents, those who are at risk of default – but not yet quite there – are often more receptive to exploring solutions."

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