This week Britain’s Organisation for Economic Cooperation and Development forecast that economic growth would accelerate by a relatively brisk 1.7 percent between June and December this year. With the economy picking up, will consumers have the credit they need to keep the momentum going, or will the “credit gap” stall their spending?
The signs for credit look good. Another positive signal came this week from FICO’s latest quarterly snapshot of UK cards performance. Average credit card limits are at their highest point in over two years. Data from the latest FICO® Benchmark Reporting Service revealed that the average credit limit for Classic credit cards has risen by 3.9 percent over the year.
The increase was primarily driven by new accounts (under a year old) and established accounts (open between one and five years), which have both seen an increase of more than 6 percent in the last 12 months. Veteran accounts (those that have been open for more than five years) have experienced a more modest average increase of 1.4 percent.
Of course, just raising people’s credit limits doesn’t mean they will use them. FICO suggests that card issuers reassess how and when they offer more credit. We believe there is scope for lenders to review their offer qualification criteria to ensure they are targeting not only low-risk, profitable customers, but those most likely to spend the extra credit that is made available to them. This will also help issuers mitigate the potential impact of unused exposure on their Basel Capital Reserves.
The card performance figures are part of the data shared with subscribers of the FICO® Benchmark Reporting Service, which compares overall market performance on some 26 million UK cards with individual card issuers’ performance. For information on the FICO Benchmark Reporting Service, contact Stacey West at firstname.lastname@example.org.