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UK credit card spending and missed payments rose in run-up to Christmas

Kalila Sangster
·3-min read
Close wife fingers holding plastic credit card on background computer on husband lap, old couple booking hotel using on-line app service and website, make online payment, shopping via internet concept
The percentage of accounts and balances with two missed payments increased for the fourth consecutive month in November. Photo: Getty

Average monthly spending on UK credit cards increased by £19 to £638 ($862) in November, according to new research by global analytics software provider FICO.

“Despite the introduction of the second national lockdown, credit card spend increased in November, as Christmas shopping got underway, boosted by Black Friday,” said Stacey West, principal consultant for FICO.

Credit card spending is now only 2.6% lower year on year than the same period in 2019, despite the impact of the coronavirus.

However, the percentage of payments to balance fell for the first time since June. The percentage of card holders paying the minimum amount on their credit cards also rose for the first time since June and was particularly noticeable for accounts opened less than a year ago, according to the research.

The percentage of accounts and balances with two missed payments increased for the fourth consecutive month in November. The average balance on these accounts grew to over a two-year high last month, climbing £252 higher than November 2019.

For three missed payments the average balance is £411 higher.

“We are now starting to see that consumers missing payments have higher average balances. There are also signs that once a payment is missed, this is never recovered,” said West.

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Lenders have been taking action to stave off a potential “debt tsunami” early in 2021 by ramping up limit decreases and reducing limit increases. Average credit card limits have continued to fall by a further £57 to £5,325.

Accounts open for more than five years reached their lowest average credit limit in the last two years. The highest proportion of accounts, 28.6%, remain in the limit range of £5,001 to £10,000, with an average balance of £1,251.

“With the introduction of the harsher tiers in December and new tier 4, resulting in further furloughs and job losses into 2021 combined with rising seasonal spend, there is going to be a proportion of consumers who will be turning more and more to their credit card for their everyday needs, adding to the normal rise we see in debt levels at this time of year,” said West.

“Transactional information could be crucial for issuers to help identify the customers showing a heavier reliance on their credit card than usual. This may, however, prove quite complex as spending patterns will already have changed as consumers increase their online card usage and reduce the volume of cash transactions.”

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Despite the increase in average credit card spending, the reduction in hospitality and in-store spending options in November due to COVID-19 and tigher curbs resulted in a further decrease in cash usage on credit cards. The percentage of consumers using credit cards to get cash fell 7.1% in November — levels are 55.2% lower than November 2019.

This has resulted in a 5% decrease in cash as a percentage of total spend, 31.3% lower than a year ago. With the COVID-19 tiers set to continue into 2021, the introduction of tier 4 and more regions at the strongest level, it is anticipated that there will be a further decline, according to FICO.

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