Trend in missing one or two credit card payments raises concerns

Fico’s November 2022 report of UK card trends has found that consumers managed their credit card debt to keep lines of credit open for the festive season as spend increased month on month. However, the report also highlighted a concern for lenders, with a trend of consumers missing two or three payments.

The research found that average total sales in November reversed the downward trend seen over the previous few months, to be 1.9% higher than October 2022 at £755 and that the percentage of payments to balance dropped by 2.8% in November, suggesting continued pressure on disposable income.

The figures also showed that accounts that had missed one payment dropped by 4.2%. Year-on-year there were 14.8% more accounts with two missed payments and 10.3% more accounts with three missed payments and the reliance on credit cards for cash withdrawals dropped, month-on-month, by 10.4%.

Fico says that the analysis of the largest consortium of UK cards data shows that November was a mixed story when it came to credit card spend and debt management. On one hand, typical festive spending was evident; but there were also signs that those already struggling to manage financial commitments were further stressed.

The percentage of cardholders missing one payment decreased for the second month in a row, although it is 9% higher than 2021. But there has also been an increasing trend since May 2022 for customers missing two payments and since June 2022 for those missing three payments.

Year on year the trend will also be a concern to lenders, with a 14.8% increase for those missing two payments since November 2021. This is likely to be driven by a combination of the exhaustion of savings built up during the pandemic, increasing interest rates and continued high levels of inflation. Going back to November 2019 — pre-pandemic — the percentage of customers missing one, two and three payments was higher than it is now. However, it is important to note that the average balance of two and three missed payments was lower three years ago.

Another sign of financial pressure is the percentage of payments to balance. This dropped again in November by 2.8% to 39.3%, and is down 1.5% year on year. This measure is expected to keep dropping as consumers’ savings reduce and cost-of-living pressures are expected to continue well into 2023.