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UK credit market: Consumers missing debt payments continue to rise

UK credit market: Consumers missing debt payments continue to rise

Global analytics software provider FICO today released its analysis of UK card trends for December 2020, which presents a mixed picture of UK consumer financial stability.

Some of the data suggest that credit card users manage their finances prudently, but where there is already pressure on finances, credit cards’ reliance is increasing.

The inevitable Christmas spending increased, albeit at lower levels than in 2019. But rising balances for accounts missing two or more payments are ringing alarm bells.

“The big concern for lenders will be that we are seeing further growth in the percentage of balances with two missed payments, which is the opposite of the normal December trend,” explained Stacey West, principal consultant for FICO® Advisors. “This is driven by accounts opened more than one year. The average balance on these accounts increased in December to an over two-year high, up £118 month-on-month and £392 year-on-year. For three missed payments the month-on-month growth was £112 and is £486 higher than December 2019.

FICO’s data shows that the average balances of consumers missing payments continue to rise at a noticeable pace.

According to the company’s representative, lenders should be identifying consumers with higher-than-ever debt levels and starting a conversation about their financial status in advance of any payment issues.

Spend on UK cards and percentage of payments increased

Not surprisingly, average spending on UK credit cards increased in December – by £25 to £663. It is, however, 4.9 percent lower than in December 2019. But there is still uncertainly about how much furlough payments and payment holidays gave some consumers the confidence to spend more than they can afford to repay.

“Average credit card spend normally falls in January and it is anticipated this year will be no different,” said West. “We just have to see how much the current conditions will impact that downward trend.”

A mixed picture

Reflecting the mixed picture of consumer finances, the percentage of payments to balance started to increase again in December, reaching over a two-year high. However, it is still 9.5 percent lower than in December 2019.

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 used by some 80 percent of UK card issuers.

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