Credit market at risk, says FICO

True state of consumer finances still masked in March, and April will be pivotal for lenders according to the latest FICO UK Credit Market report for March (www.fico.com).

In its analysis of UK card trends for March 2021, FICO data reveals that the average spend per card is lower but the average amount spent over a card’s limit is 25% higher.  The latest data suggests that the downward trend for those facing debt issues continues to be masked by those whose financial status has improved during lockdowns.

“Our March data shows the impact of what is hopefully the last full month of a national lockdown and the ongoing financial support, with fewer accounts exceeding their limit, falling card and cash usage and low missed payment rates,” explains Steve Hadaway, who oversees FICO’s operations in EMEA.  “But we may be starting to see a deterioration in affordability, with a lower percentage of payments to balance and slowly increasing volumes of accounts with missed payments.  With the lockdowns ending and the opportunities to spend increasing, April will be a pivotal month in starting to reveal the true state of consumer finances.

“The increased spending opportunities will highlight if any extra spend is down to those who’ve built up their savings pot or whether a proportion are consumers wanting to take advantage of the newfound freedom even if their financial future is uncertain.  The impact of the sustainability of certain businesses will also start to be reflected next month. It will be crucial for issuers to be on alert for any signs of financial stress in their customer base, and have systems, strategies and treatments ready to respond to what may be quickly changing customer circumstances.”

The average spend on UK credit cards increased by £13 to £560 in March 2021, with sales 9% lower than a year ago.  “Spend has started to increase for the first time since December,” continues Hadaway.  “Potentially this is due to anticipation of the first stage in the reopening of retail and hospitality sectors and some consumers may have booked summer holidays, whether domestically or taking a chance that foreign travel will be permitted.”

Average balances on accounts missing two or more payments remain higher than a year ago.  For accounts missing two payments, average balances are £103 or 4% higher than March 2020.  Average balances on accounts with three missed payments are £414 higher (16%) and four missed payments plus are £349 higher (12%), reaching another over two-year high.

Card limits remain steady, but the average amount over-limit reached another over two-year high.

“The above-limit lockdown spend has continued to grow, despite a lower proportion of customers exceeding their limit,” adds Steve Hadaway.  “This is a worrying trend.  With no sign of the average spend over the limit decreasing, issuers should target this sub population, as they may be struggling financially.  With more accounts shifting to paying the minimum amount due and exceeding a limit incurring fees, this may result in additional consumers finding themselves in the persistent debt process.”

The percentage of consumers using their cards to withdraw cash has been on a downwards trajectory since September 2019, and the pandemic accelerated this.  It fell a further 6% in March 2021 and is now 60% lower year-on-year.