FICO Data: UK Credit Card Customers Showing Signs of Financial Stress
Worrying trends developing amongst established credit card users as missed payments rise
LONDON, 19 April 2023 –
New analysis of UK credit card activity from FICO has revealed worrying payment patterns amongst customers who have held their cards for between one and five years, known as the Established vintage. This group is showing increased rates of missed payments and other signs of financial stress. This will particularly be a concern for risk managers, with new Consumer Duty expectations starting in July.
- Established vintage of UK credit card accounts is 83 percent more likely to have missed two payments in February 2023 than the average of all card accounts
- The average balance value predicted to not be paid by the Established group is 69 percent higher than for all card accounts for February 2023
- The percentage of accounts with three missed payments is nearly 94 percent higher amongst Established card holders than for all card accounts for February 2023
FICO monitors card use and payment performance and has analysed the performance of different groups of card holders as the pressures of the cost of living crisis increase. In particular, FICO has looked at the Established group – accounts that have been open from one to five years.
Tracking the difference month on month over a five-year period, the percentage of customers missing one, two and three payments as well as the balance of these missed payments compared to the overall balance are all increasing significantly, as seen by the percentages below:
- The percentage of Established accounts with one missed payment is 41 percent higher than all account vintages. It was 18 percent higher in 2018.
- The percentage of Established accounts with two missed payments is more than 83 percent higher than all account vintages. It was 53 percent higher five years ago.
- The percentage of Established accounts with three missed payments is nearly 94 percent higher. It was 66 percent higher in February 2018.
In line with the higher late payments, the percentage of payments that are less than the minimum due are also considerably higher for the Established group; in February 2023 the average for Established accounts was 55 percent higher than all accounts.
Another key factor is that as customers miss payments, those on a promotional rate will probably have to pay interest, even if they were on a 0 percent balance transfer. As FICO has seen with the increased delinquency for the Established group, average interest per active account is also higher and currently stands 19 percent higher, having risen steeply since July 2020.
Balance at Risk
FICO’s benchmarking also tracks the “balance at risk” for a customer. This predicts how much of the credit card balance is expected to not get paid. When comparing the Established pool to the overall population during the pandemic, reduced spend opportunities and higher savings lowered the balance at risk. However, since February 2022, this has been increasing in line with the cost-of-living crisis and the average is currently more than 60 percent higher for the Established group. In comparison, the average Established cards balances at risk was 47 percent higher than all vintages in 2018.
All of these trends will be of concern to risk managers. Customers who have taken advantage of promotional offers in the past may now be struggling to transfer these balances elsewhere and are left with higher balances, on a high interest rate with a higher minimum due each month. One of the main themes of the FCA Consumer Duty which comes into force in July is around identifying and supporting vulnerable customers just like these. Proactive treatment and support — such as specific collections treatment, loan consolidation or alternative product offerings with a lower APR attached — are all areas issuers can consider in order to meet the requirements set out in the Consumer Duty.
The Data Charts
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 percent of UK card issuers.
FICO (NYSE: FICO) powers decisions that help people and businesses around the world prosper. Founded in 1956, the company is a pioneer in the use of predictive analytics and data science to improve operational decisions. FICO holds more than 200 US and foreign patents on technologies that increase profitability, customer satisfaction and growth for businesses in financial services, telecommunications, health care, retail and many other industries. Using FICO solutions, businesses in nearly 120 countries do everything from protecting 2.6 billion payment cards from fraud, to helping people get credit, to ensuring that millions of airplanes and rental cars are in the right place at the right time.
Learn more at https://www.fico.com
FICO and TRIAD are registered trademarks of Fair Isaac Corporation in the U.S. and other countries.
For further comment on the FICO UK Credit Card activity contact:
FICO UK PR Team
Wendy Harrison/Parm Heer/Matthew Enderby
0208 977 9132
Take the next step
Connect with FICO for answers to all your product and solution questions. Interested in becoming a business partner? Contact us to learn more. We look forward to hearing from you.