FICO’s report of UK card risk trends for summer 2022 (June-August) paints a picture of inconsistent consumer behaviour and market patterns which will be challenging for lenders to manage as the cost-of-living crisis impacts financial spending and consumer finances.
Analysis of the largest consortium of UK cards data and trends shows the percentage of consumers using their credit card to take out cash steadily increasing over the three months – a clear indicator of financial stress and future risk as the interest charged for cash on credit cards is always higher than standard purchases.
Total market average sales on credit cards also increased across the summer. With media reports suggesting consumers have been reducing their spending in response to the cost-of-living crisis, this uplift in spend on credit cards illustrates the increasing reliance on credit rather than disposable income or savings. The average active balance on credit cards is now at its highest for over two years.
The percentage of payments to balance also reflects the pattern of inconsistency seen across the market through the earlier months of the year. In June it dropped by 3% month on month; in July it increased by 1.7% and then in August it dropped again by 1.8%.
The percentage of missed payments in the UK also sends confusing messages for lenders. In June cardholders missing one payment remained almost static, but in July it increased by 2.2% and in August dropped by 4.6% compared to the previous month. However, the percentage of cardholders missing two or three payments increased steeply in August compared to July by 8.5% and 9%, respectively.
This suggests that UK cardholders who miss more than one payment may not have the funds to catch up and are struggling with over indebtedness. There is also evidence that the percentage of UK cardholders spending over their credit limit has been slowly trending upwards since March. This could be another signal that some cardholders are over-indebted across the market.
UK lenders can use segmentation analysis on their portfolios to ensure that their web and mobile applications encourage consumers in distress to make contact at the first indications of difficulty, and to consider establishing special payment plans for those impacted by market pressures, mitigating further risk.
These card performance figures are part of the data shared with subscribers of the FICO® Benchmark Reporting Service produced by FICO® Advisors, the business consulting arm of FICO. The data sample comes from client reports generated by the FICO® TRIAD® Customer Manager solution in use by some 80%of UK card issuers.
How FICO Can Help You Manage Credit Card Risk and Performance
- Work with our FICO Advisors team
- Explore our solutions for credit line management and collections prevention
- See my post on UK Credit Card Trends: From 2008 Crash to Cost-of-Living Crisis
- Read more posts on UK cards