UK Cards: FICO Data Shows Delinquencies and Spend Are Rising
The impact of stubbornly high inflation is evident in changing patterns on UK credit cards
The latest FICO data on UK credit card trends reveals the continued see-saw picture of consumer credit card habits seen for the last year.
More consumers missed at least one payment during May after the rise and fall of March and April. However, counteracting that negative picture, the percentage of consumers paying off their full balance also increased month-on-month.
With the Bank of England reporting that May saw the highest level of household withdrawals from banks and building societies – at £4.6 billion – it appears that, where they’re able, consumers are falling back on savings to deal with rising day-to-day costs. But credit cards are also underpinning spending, with the average total credit card spend remaining higher than the same period in 2022 and 2021 and the use of credit cards for cash withdrawals increasing for the third month in a row.
The Latest Trends
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Year-on-year, credit card delinquency is higher overall
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The number of accounts with one missed payment rose by 10.8% month-on-month and 9.2% year-on-year
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Accounts missing two payments also remains high compared to 2022 — up 24.5% — and the average balance is also following the pattern of increases over the last three months increasing 1.2% month-on-month
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The percentage of customers missing three payments also increased in May — by 2.6% month-on-month and 26.6% year-on-year
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In contrast to the missed payments patterns, the percentage of payments to total balance increased by 6% in May to 39.4%
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Average spend in May was 6.1% higher than the same month last year and £148 higher than two years ago although it dropped by 3.3% after a peak in April, averaging £800.
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The percentage of customers using their credit card to take out cash increased for the third month in a row; up 4% month-on-month and 8.6% year-on-year, indicating ongoing financial stress.
The month-on-month decrease in spending and transactions on credit cards in May could reflect the record high withdrawals from bank and savings accounts reported by the Bank of England. However, with total balance payments rising by 6.02% in May, it could be that consumers prioritised paying off credit balances to ensure the spending channel remains open for future needs. Once savings deplete, there could be an uptick in credit card missed payments.
Previous concerns around increased spend alongside reduced percentage of payments to balance have been somewhat allayed during May, with lower spend and more accounts paying off more of their outstanding balance. However, the rising number of consumers relying on their credit card to withdraw cash, despite higher APRs for cash withdrawals, indicates significant financial stress could be rising for many people. Typically, it is customers struggling with affordability who tend to use their credit cards to take out cash. As the cost-of-living crisis continues, reliance on credit cards for cash withdrawals may increase further.
What These Credit Card Trends Mean for Issuers
The financial volatility among UK credit card holders puts the onus on lenders to be particularly vigilant. While inflation remains stubbornly high, spend levels are expected to remain higher than previous years. With savings only bolstering finances for so long, credit card operators will need to closely monitor for any signs of financial stress.
As the pressure on finances and increasing interest rates continue, lenders will need to look closely at how customers are managing their existing commitments and remain vigilant for signs that the volatile conditions are impacting affordability.
These card performance figures are part of the data shared with subscribers of the FICO® Benchmark Reporting Service. 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
- Explore our solutions for customer management
- See my post on UK Credit Card Trends: From 2008 Crash to Cost-of-Living Crisis
- Read more posts on UK cards
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