Payments for outstanding credit balances have
dropped to a two-year low, the latest FICO Benchmark Reporting
Service shows.
According to the data shared exclusively with
Cards International, the majority of UK cardsholders pay
less of their outstanding credit balance.
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Conversely, the number of UK cardholders using
cash advances on credit cards has hit a two-year high, FICO
said.
The data refers to classic card accounts,
which do not include student, Irish and premium credit cards, and
shows that the payments-to-balance ratio for all classic accounts
(new, established and veteran accounts) has fallen from about 23.8%
in August to 21.9% in September this year.
There had been a somewhat stable increase in
the payments-to-balance ration over the past six or so months,
after it had reached its lowest point since February 2010 in April,
standing at 22%.
Since April, the payments-to-balance ratio had risen steadily:
to about 22.9% in May (and stagnated at that level in June); 23.8%
in July, with a marginal dip to 23.7% in August.
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By GlobalDataMike Gordon, vice president and managing
director, EMEA at FICO, told Cards International that the
analytics and decision management technology provider was “a bit
surprised” to see the downward trend.
“We had found the data [payment-to-balance
ratio] was improving over the last six to 12 months. This [new
data] took us by surprise. But when you take into account the
macro-economic factors, then it is understandable,” Gordon
said.
“While the economy hasn’t undergone double-dip
recession, every body is concerned. There is a lot of angst among
consumers – that angst comes in from the eurozone crisis.
“We also see that angst from the purchasing
managers we deal with, from the credit demand; we see it from the
amount of hits the credit bureaus receive. The angst is very
heavy.”
The data is in contrast to delinquency rates
data by Equifax, which has shown that delinquency rates and credit
lines were improving and Gordon agreed that the US credit card
market “is very different” and that unlike in the UK, there is a
rebound trend.
Uncertain outlook
So what is FICO’s outlook? Are we heading for
bad times again?
“That is an outstanding question,” Gordon
admits. “Whether this improves or not depends on how the
economy moves,” Gordon said.
“We may see more of the same trend, maybe for
the next six to nine months. Consumers cannot get access to credit.
So it puts pressure on them to increase spending in any way. Until
the debt crisis and banks’ risk exposure is improved, their credit
lines will be limited.
“There is no doubt there will be an increase
in the volume of transactions over Christmas.But if consumers have
less flexibility with their cards, then, while transactions will go
up, I doubt it will be at the levels of what retailers would
consider a successful Christmas season.
“There is also no doubt that in January,
February, March, consumers will try to drive down their
‘overspending’ over Christmas. There will be drop off in the
transactions, so you will see the same as before. But I think it
will be muted, it will not be as high as in the past,” he said.
