
Latest data from FICO on UK credit card trends has illustrated the financial balancing act many consumers are facing. Average card spend has increased month-on-month and year-on-year. Higher prices for day-to-day purchases will be reflected in this increase. UK consumers are also paying off less of their outstanding balance, indicating the squeeze on personal budgets.
FICO says that there are, however, some positive signs of financial management. The percentage of accounts missing one payment dropping significantly month-on-month in February after two months of high increases. The number of accounts missing two payments has also seen the first significant drop since May 2022. The big question for lenders will be whether these patterns are sustained over the coming months. Diligent account management will be critical, particularly as the new Consumer Duty Guidance comes into force in the summer.
The data shows that average total sales up 3.7 percent compared to January 2023 at £785 whilst the percentage of accounts missing one payment decreased by 15.6 percent compared to January 2023.
The percentage of accounts with two missed payments decreased 12.6 percent compared to January 2023, although 25 percent higher than February 2022 with accounts missing three payments continued to rise, up 27.4 percent year-on-year. Average balances across all accounts up 8.7 percent year-on-year to £1,660.
FICO commented that as living standards continue to be squeezed, it’s not surprising that the percentage of payments to balance has dropped consistently since May 2022. This trend is likely to continue given the current economic pressures. Interestingly though, the current percentage of payments to balance — at 37.8 percent — is considerably higher than before the pandemic, when it was around 30 percent.
How consumers manage their existing financial commitments is also crucial to monitor in the current climate. The fact that the percentage of customers missing one payment decreased significantly in February 2023 — a typical behaviour post-Christmas — will be welcomed by lenders after two months of sharp increases. The percentage of cardholders missing two payments also dropped significantly, but with the proportion 25 percent higher than February 2022 it will be interesting to see whether there is any uptick in March and whether the increase month-on-month seen for the average balances of those customers missing one and two payments starts to reduce.
The percentage of customers missing three payments has significantly increased since June 2022. With a 27.4 percent increase compared to February 2022, lenders will want to implement the best support for these vulnerable customers. Specialised collections support and collections departments will need to ensure they have enough experienced collectors.