Distribution of Credit Card Risk Diverging From Broader U.S. Consumer Credit Trends

Average credit lines continue to decline across all risk categories, monthly purchase volumes rebounded and cardholders are paying less interest as a percent of outstanding credit card credit, according to the latest edition of the American Bankers Association’s Credit Card Market Monitor.

The report, reflecting data from this year’s second quarter, highlights trends in consumer behavior, rewards cards and the distribution of risk in the credit card market, including a steady increase in the percentage of credit card “transactors” – cardholders who pay off their balances in full instead of carrying a balance forward.  Between the first quarter of 2008 and the second quarter of this year, the share of transactors has increased from 19.6 percent to 28.7 percent of all accounts.

“The growth in transactors is a positive trend that suggests consumers are doing a better job of managing their credit cards,” said Kenneth J. Clayton, executive director of the ABA’s Card Policy Council.

The Monitor also provided insight on consumer behavior relating to rewards.  While there is still much to be learned in the rewards space, the data indicates that a substantial majority of cardholders – across all risk categories – use rewards cards. The report found that nearly 85 percent of super-prime credit card accounts, 75 percent of prime accounts and 57 percent of sub-prime accounts had a rewards program.

“To put a real face on it, that means it’s likely that more than 100 million people across all credit categories enjoy some form of benefit from rewards cards,” Clayton said.  “Since rewards cards are associated with higher spending, that’s a boon for both retailers and the broader economy.”

This quarter’s Credit Card Market Monitor also demonstrates that the distribution of risk in the credit card market has diverged from broader trends.  In particular, among all U.S. consumers, the distribution of risk scores has remained relatively steady since 2008.  However, there has been a dramatic shift towards less risky accounts in the credit card market.

Since 2009, for example, the share of super-prime accounts increased from 42 percent to 51.7 percent, and the share of sub-prime cardholders declined from 26.5 percent to just 18.8 percent.

“We’re still exploring the factors behind the dramatic shift to low-risk accounts in the face of an improving economy and slowly easing credit standards,” Clayton said.  “Regulatory restrictions on banks’ ability to manage risk, the unsecured nature of credit cards and the after-effects of the recession all play a role as banks navigate today’s economic environment.”

The full report, including charts and detailed statistics is available here.

The American Bankers Association represents banks for all sizes and charters and is the voice for the nation’s $14 trillion banking industry and its 2 million employees. Learn more at www.aba.com.

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 new accounts less than 24 months old based on actual credit card account information.  No individual account holder information or specific financial institution 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.