UK credit card balances & missed payments on the rise

The latest FICO UK Credit Card Market Report has highlighted a potential risk of first-party fraud amid ongoing financial pressures affecting the affordability for many consumers.

FICO's analysis shows that average credit card spending in the UK decreased by 11% month-on-month in January to GBP £765 but then rose by 3% in February, reaching GBP £790, following typical seasonal patterns.

Data from FICO reveals that the average card balance experienced a minor drop of 0.6% in January before increasing by 0.5% in February. Compared with the same period last year, there was a year-on-year balance increase of 5%, which the report attributes in part to the broader impacts of the higher cost of living.

The report also notes that by February, the percentage of the total card balance paid off by customers had fallen by over 4% year-on-year to 35%, suggesting that more consumers may be struggling to meet their full monthly obligations.

Missed payments trends have shown fluctuation. In January, the number of cardholders missing payments rose across one, two, and three-month categories. However, FICO notes that in February, there was a decrease in customers missing one or two payments, indicating that consumers may have prioritised their card payments after the new year. Despite this, concern remains over the continuing rise in the number of customers missing three consecutive payments.

The average balance associated with a single missed payment increased in both January and February, reaching GBP £2,345, a rise of 4% compared with the previous year. Similarly, the average balance two and three payments overdue also increased, with February figures rising by 3% and 1.3% to GBP £2,805 and GBP £3,195, respectively.

Meanwhile, fewer customers are using their credit cards to take out cash. The percentage of customers utilising cash advances on their credit cards continued to decrease, falling by 3.8% in January and 3.5% in February. Compared with a year ago, rates have dropped from 8.6% to 3%.

The report further identifies a growing trend in first-party fraud, based on discussions FICO has held with leading financial institutions. First-party fraud typically involves a cardholder knowingly making a substantial purchase up to their credit limit and using a payment that will not clear. While the payment processes, the available credit on the card may temporarily reset, allowing further purchases. When the payment eventually fails due to insufficient funds, the issuer is left with an increased delinquent balance.

In response to the rise in first-party fraud, FICO is working with multiple card issuers to develop strategies to mitigate this risk. One approach under consideration is holding payments identified as high risk until the payment clears, in order to minimise balances that could ultimately be charged off.

Commenting on the findings, FICO stated: "While the spending and balances patterns seen at the start of the year are typical, there was an unexpected increase in the number of customers missing payments in January. Risk managers should review and potentially refresh collections treatment and communication channels to ensure that customers facing affordability issues during the continuing uncertain economic climate are properly supported."

FICO added: "Further evidence of the continued pressure on personal finances is the percentage of overall balance paid, which has been trending down in recent years, especially among customers who have had their cards less than one year. For this segment, collections treatment and communication channels may need to be reviewed to ensure customers struggling with affordability receive the appropriate pre-delinquent support and are on the right credit product to meet their needs."

The findings are derived from data supplied by card issuers using the FICO TRIAD Customer Manager solution, which is in place at around 80% of UK card issuers.