Credit card use continued to increase in the third quarter of 2018, according to the American Bankers Association’s latest quarterly Credit Card Market Monitor. Compared to the previous quarter, purchase volumes increased for both subprime and super-prime accounts, but moderated for prime accounts. On an annual basis, monthly purchase volumes rose across risk tiers, led by super-prime accounts (+10 percent) which saw their strongest year-over-year growth in nearly eight years. Super-prime accounts are held by consumers with the strongest credit.
The January 2019 Monitor, which consists of credit card data from July through September 2018, also found that the number of total credit card accounts continued to rise, but at a slower year-over-year pace. Meanwhile, the total number of new accounts (those opened in the previous 24 months) decreased nearly 6 percent compared to year-ago levels, reflecting sharp declines in new prime and subprime accounts.
On a quarterly basis, average credit lines among all accounts rose for prime and subprime cardholders, while the average credit line for super-prime accounts was essentially unchanged. Among new accounts, the average credit line for subprime accounts rose 2.4 percent compared to the previous quarter but remains well below its post-recession peak. Meanwhile, average credit lines among new prime and super-prime accounts fell 0.9 percent and 1.2 percent on a quarterly basis, respectively.
“Consumer spending remains a major bright spot in the U.S. economy, and elevated consumer confidence levels coupled with stronger wage growth should keep spending healthy, at least through early 2019,” said Jess Sharp, executive director of ABA’s Card Policy Council. “At the same time, there is evidence that issuers may be starting to pull back a bit. Tapping the brakes is an indication that issuers have their eye on the ball and are trying to help consumers continue to effectively manage their credit.”
Consumers Continue to Demonstrate Responsible Card Use
Third quarter data also show that the share of Transactors (i.e., those who pay their monthly balance in full each month) fell 0.2 percentage point to 30.2 percent, but its current level marks the second-highest reading since ABA began tracking this metric in 2008. The share of Dormant accounts also fell slightly to a 10-year low of 25.6 percent in Q3, while the share of Revolvers (i.e., those who carry a monthly balance) rose 0.4 percent to 44.1 percent.
Credit card credit outstanding as a share of disposable income rose 4 basis points to 5.42 percent in Q3, but remains 200-300 basis points below pre-recession levels and has seen little growth over the past six years. Meanwhile, the effective finance charge yield (which measures interest payments relative to total outstanding credit in the market) increased 24 basis points to 12.80 percent in the third quarter. Though recent Federal Reserve interest rate hikes have put upward pressure on the effective finance charge yield, the metric has increased at a slower pace than the Fed’s benchmark interest rate, suggesting that an improvement in consumers’ ability to manage credit card debt has partially offset rising interest rates. The Fed lifted its benchmark interest rate a total of 200 basis points from Q3 2015 through Q3 2018, while the effective finance charge yield rose 171 basis points during this period.
“Credit card interest rates are reflective of broader economic trends, including changes to the federal funds rate, so it is not surprising that the effective finance charge yield is rising,” added Sharp. “Most consumers are maintaining discipline in their use of credit cards, as evidenced by the amount of outstanding credit card credit relative to disposable income, though credit card use will likely see a jump in early 2019 as furloughed federal workers cover costs amid the government shutdown.”
The full report with detailed charts and statistics is available here.
About the Credit Card Market Monitor
The American Bankers Association Credit Card Market Monitor is a quarterly report that provides key statistics on industry trends and relevant economic factors affecting the industry. The credit card data used in the report is taken from a nationally representative sample provided by Argus Information Services LLC. Credit card data are presented as national averages for all accounts based on actual credit card account information. No individual account holder’s information or specific financial institution’s data can be identified from the data set. Other data used in the report are taken from various public and private sources, including the Department of Commerce’s Bureau of Economic Analysis and the Federal Reserve.
Answers to Frequently Asked Questions and definitions of the data presented in the ABA Credit Card Industry Monitor can be found in an Appendix attached to the monitor.
Results of this and all previous reports can be found at www.aba.com.
The American Bankers Association is the voice of the nation’s $17.5 trillion banking industry, which is composed of small, regional and large banks that together employ more than 2 million people, safeguard $13.5 trillion in deposits and extend nearly $10 trillion in loans.