Consumer Payment Behavior on Credit Cards Impacted by the Pandemic

Over the past three years, many of us have been made aware of just how much the pandemic upended revolving credit behavior by consumers, with the limited ability to spend or travel, on-going stimulus checks and unusually high savings rates. Credit card payment rates saw historic highs while credit card delinquency bottomed out. But what else can we learn about how consumer credit behavior has shifted over time?

The term “transactor” is used by credit card issuers to describe a customer who carries no residual card debt. These consumers put transactions on their credit card and pay the card balance in full each month. If the customer does not pay the card balance in full then they will be charged interest on the remaining card balance based on the APR on the credit card and are called a “revolver”. Before the start of the pandemic, the proportion of customers who paid the full card balance in any given month was very stable at 43.5%.

There is a clear behavioral shift in the overall credit usage that began in May 2020 in conjunction with the first stimulus checks being delivered to all American consumers. The percentage of consumers paying their credit card balance in full jumped month-over-month, peaking at 51.4%, from May 2020 to April 2021 which is also when the final stimulus check was delivered. Since then, the rate of consumers paying their credit card balance in full has dropped each month and is now back to 46.3%.

Although the rate for the overall US Bankcard industry is not back down to pre-pandemic levels, we see a big difference when reviewing segments of the population. Consumers who have held their credit card for more than five years have sustained higher rates of paying credit card debt in full after the peak in April 2021 (50.5% in April 2023 vs. 46.5% pre-pandemic). In contrast, the segment of consumers who have held their credit card less than one year has seen the percentage of transactor behavior fall drastically and is now much lower than before the start of the pandemic (36.8% in April 2023 vs. 43.0% pre-pandemic with a peak of 53.1% in April 2021).

On the opposite side of credit card transactors are those credit card revolvers who only pay the minimum credit card amount due, which is typically 1-3% of the credit card balance plus the accrued interest. This metric also shows concerning behavior because prior to the pandemic there wasn't a difference in the percentage of min-paying consumers based on how long a customer held the credit card account. In 2022, customers who held their credit card for less than one year had a rate of min-pay that nearly doubled all the other segments of the consumer population. This group of customers are usually the first to fall delinquent on their payments when an unexpected expense comes up.

The change in consumer credit card behavior could be concerning for Risk Managers because credit cards that were issued during the pandemic may have been given to consumers without understanding their future financial position. Excess savings coming from the limited ability to spend, and the past stimulus checks may not be enough to outweigh the increasing cost of living and the return to travel. Those consumers with student loan debt will also be required to resume making payments as early as August 31st.

And what is the consumer impact on increasing credit card revolver behavior on FICO® Scores? As noted here, the average U.S. FICO Score leveled off in 2022, after increasing significantly during the first several years of the pandemic. This leveling off was driven at least in part by increasing revolving credit card debt levels, which are a key driver of the “amounts owed” category that comprises 30% of the overall FICO Score calculation. Coupled with the insight above regarding increased credit card revolver behavior, we now understand that the increase in revolving debt levels observed between 2021 and today is not simply due to increased spending by consumers but is also due to increased numbers of consumers paying off less than their full credit card statement balance. Many of the mitigation strategies aimed at assisting Covid-19 impacted consumers early in the pandemic have been phased out. Should this trend in increased credit card revolver behavior continue to grow and/or spread beyond just those credit card accounts issued during the pandemic, we we will likely see further downward pressure on U.S. consumer FICO Scores in the coming quarters. 

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This blog is co-authored by Ethan Dornhelm, Vice President of Scores and Predictive Analytics at FICO.