US Bankcards Industry Benchmarking Trends: 2023 Q2 Update

Higher prices keep customers in a pinch from making on-time payments

by Leanne Marshall

Principal Consultant

August 10, 2023

Growth persisted in the first half of 2023 as increasing interest rates began to impact the US Real Gross Domestic Product (GDP). While the job market remains more robust than expected, financial stress continues to surround inflation, as it’s proven to be longer-lasting despite rises to the Federal Funds rate. In this blog, I will review the latest economic trends in the US and share new data on credit card payment patterns, and what these say about consumers’ financial health.

Rising interest rates have slowed the demand for credit and loans on purchases of new houses and vehicles, but consumer demand continues to rise on revolving credit cards despite the higher rates. More consumers are using their credit cards and the average balance continues to climb.

The numbers:

The US Real Gross Domestic Product (GDP) released by the U.S. Bureau of Economic Analysis showed the economy grew at a pace of 2.4% in the second quarter of 2023. Visa’s latest forecast predicts that high interest rates will catch up with GDP in Q3 and Q4 2023, leading to the declaration of a recession.
The unemployment rate has stayed steady around 3.6% over the past several months. Prior expectations from the Federal Reserve were that the unemployment rate would rise to 4.3-4.9% by the end of 2023; however, the job market has remained strong and now forecasters believe unemployment will continue below 4% until mid-2024.
The National Association of Realtors reported that sales of previously owned homes declined 3.3% in June (compared with May) and are down 18.9% when compared to June 2022. Overall, housing prices are expected to hold their ground in 2023 while inventories return to more normal levels than in previous years.
U.S. Census Bureau reports advanced estimates that retail sales were up 0.2% from May 2023 to June 2023.
Inflation (the year-over-year comparison of the Consumer Price Index) continued to slow in June to 3.1%; prices rose 0.1%-0.3% each month in the second quarter.
Based on June data, the Federal Funds Effective Rate was raised to 5.25%-5.5% during the Federal Reserve’s July meeting – the highest rate in 22 years.

The following card performance metrics help us understand the impact of the macro environment on consumers and the credit card industry at an aggregate level. These figures represent a national sample of approximately 130 million accounts that comprise FICO® Advisors’ Risk Benchmarking solution. The data sample comes from FICO client reports generated by FICO® TRIAD® Customer Manager and Adaptive Control System solutions.

Bankcard Usage & Payments

The average balance on US bankcards has been climbing steadily since March 2022 and is now $2,573, a 6.5% increase from one year ago. The percentage of customers active on their cards each month has been stable at ~51-52% since December 2021, contributing to the increase in balance, while average monthly spend has remained stable over the same time period.

The increase in average balance is also driven by a decreasing payment rate (percentage of previous month’s balance that was paid back). The US bankcard payment rate in June of 27.7% is 7.5% lower year-over-year.

Delinquency Rates

Pressures from rising balances and inflated interest rates are leading to higher past due rates across the US bankcard industry. Customers are entering delinquency at a faster pace over the past two years and rolling these increased levels of debt through collections buckets, leading to increased losses for issuers.

The percentage of accounts that are one cycle past due has grown by 42.6% in the past two years and the percentage of balances that are one cycle past due has grown by 28.3%. June’s rates of 6.7% and 6.8%, respectively, are the highest one-cycle past due rates since September 2017. With customers unable to keep up or catch up, the percentage of accounts and balances that are two cycles past due has more than doubled over the same two-year period. The probability of repayment drops significantly when a customer misses multiple payments in a row.

Overall, the U.S. bankcard data indicates that consumer behavior has been in a downward spiral. Increased card usage and lower payment amounts will need to be monitored closely by risk managers so lending strategies are updated accordingly. Consumers who are struggling can find tools at myFICO.com to help keep track of their credit usage and FICO® Score.

Financial institutions and credit card issuers can reach out to your FICO Solution Success Advisor or FICO Client Partner for a discussion and current state assessment if you need help completing an evaluation of your portfolio.

If you have questions or are interested in discussing these insights in more detail, please leave a comment on this post.

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FICO’s latest research on <a href="http://www.fico.com/en/blogs/risk-compliance/us-credit-quality-rising-the-beat-goes-on/" target="_blank">national FICO® Score distribution</a> shows that US credit quality continues to trend upwards, with an increasing number of consumers scoring in the highest scores ranges. Given that, we decided it was time to refresh our study on “<a href="http://www.fico.com/en/blogs/risk-compliance/infographic-what-does-a-high-credit-scorer-look-like/" target="_blank">FICO® Score high achievers</a>,” where we examine the credit behavioural profiles of consumers with higher credit scores. As expected, our latest study showed that older people generally have higher scores, as has been the case in our <a href="http://www.fico.com/en/blogs/risk-compliance/age-before-beauty-credit-worthiness-before-youth/" target="_blank">past research</a>. This is largely because they have trade lines that have been open longer, which leads to higher scores (assuming the trade lines are in good standing and all other things equal). The most credit savvy among you will remember that length of credit history accounts for roughly 15% of the overall <a href="http://www.myfico.com/CreditEducation/WhatsInYourScore.aspx" target="_blank">FICO® Score calculation</a>. But for younger consumers, it isn’t too helpful to say, “just wait until you are 50 years old, and that will fix things!” Thus, I decided to dive deeper with our analysis, including looking at the credit behavioural characteristics of younger consumers with high FICO® Scores. In this analysis, I looked at credit characteristics for the two highest score bands, 750-799 and 800-850, which have about 16% and 23% of the population, respectively. I further broke this down by looking at the characteristics of the youngest 15% in each group, which occurs at age 29 for the 750-799 group and 43 for the 800-850. We used FICO® Score 9 for our analysis, and examined typical variables of the categories that go into the make-up of the score. <a href="http://www.fico.com/en/blogs/wp-content/uploads/2016/10/FICO-Score-High-Achiever-table.png"><img class="alignnone size-full wp-image-29367" src="http://www.fico.com/en/blogs/wp-content/uploads/2016/10/FICO-Score-High-Achiever-table.png" alt="fico-score-high-achiever-table" width="715" height="747" /></a> Since there’s a lot to dissect in this chart, I’ll highlight a few findings that struck me: <ul> <li>Credit history. Higher scores are undoubtedly associated with a longer time on file. What’s striking is the higher average time on file for the 800+ group, both overall and for revolving accounts (the most common trade line). Clearly, it helps to start credit use early in life – but that’s not the sole determining factor for high scoring. The younger cohorts in both the 800+ and 750-799 groups have time on file medians significantly less than their older counterparts.</li> <li>New credit. High credit scorers do, in fact, pursue new credit. We see little variation in months since last trade line opening and last inquiry among all groups observed.</li> <li>Pay on time. As you might expect, the further in the past the delinquency, the higher the score – and that’s if a delinquency ever happened. 95% of the 800+ people and 72% of the 750-799 group have never been delinquent, which is a striking contrast to the 57% for the total population. The percentages for the younger groups are even higher, especially so for the 750-799ers. Collection items are also scarce for these high scorers. While 23% of the national population have collection items greater than $99, the figures are only 0.5% for the 800+ group and 3% for the 750-799 group. It is clear that, in conjunction with starting a credit file early, paying on time is a key trait of the FICO® Score high achiever.</li> <li>Balance and utilization. Finally, we look at how credit is being used, focusing on revolving product use. (Since most people only have one mortgage or one auto loan, variation in instalment product figures is minimal and driven by payment history, which is near perfect for high scorers, as we’ve seen.) FICO® Score high achievers tend to have more open revolving accounts. While the % active trades and utilization are generally lower, by no means do high scorers avoid the use of credit products. What drives the difference here is the amount of available revolving credit utilized. The 800+ group is roughly 1/4 of the national median, both in total and on their highest utilized card; they also have lower balances and more cards. The 750-799 group is more active and higher utilized, but still only at 2/3 of the national figures. The young 750-799 group compensate with lower revolving balances and, as a result, lower utilization, which is in line with what we see for the 800+ group.</li> <li>Benchmarks. I’d like to point out that while this study provides good benchmarks of the typical credit traits of the FICO® Score high achiever, individual credit profiles will vary widely. And keep in mind that when we sort groups of consumers as a whole by different behaviours, some results may look superficially odd. For example, the 800+ band has a longer median average open account time (128 months) than average revolving months on file (140 months).</li> </ul> So, what do we conclude? A huge takeaway is that high scorers don’t have too much in the way of serious delinquencies and negative public record data. In most respects, the young 800+ people are like their peer group. They really only differ markedly in their shorter credit history and higher non-mortgage balance, both of which are a function of life stage. Our results show that you don’t have to be a credit product hermit; these high scorers have more credit cards. The takeaway is to start credit activity early and maintain well-managed and moderate usage. In many ways, the young 750-799 people are more interesting because their age profile is much younger. Their credit characteristics differ more from their peer group, particularly in terms of length of credit history. They compensate by having almost pristine credit records and lower balances. Ultimately, 39% of US consumers are FICO® Score high achievers, which they accomplish by following common-sense credit practices. It ain’t rocket science!

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