May 1 – The credit card market continued to expand in last year’s fourth quarter, with a solidifying labor market and rising wages driving steady year-over-year growth in monthly purchase volumes, according to the American Bankers Association’s latest Credit Card Market Monitor. The gains occurred across subprime (up 5.1 percent), prime (up 8.5 percent), and super-prime (up 9.7 percent) risk tiers.
The April 2017 Monitor, which reflects credit card data from October through December 2016, also found that account volumes continued to edge up. The number of new credit card accounts (those opened in the previous 24 months) rose to 88.1 million, driven in part by a 16 percent increase in new subprime accounts. Even with this increase, subprime accounts continue to comprise roughly one-fifth of total open accounts — equivalent to 2012 levels.
Average credit lines also rose across risk tiers as last year came to a close. Among new accounts, super-prime cardholders saw the largest increase relative to the third quarter (up 2.7 percent to $10,202), while prime and subprime credit lines also increased to $5,571 (up 2.0 percent) and $2,536 (up 1.1 percent) respectively.
“The unemployment rate has been below 5 percent for nearly a year, and wages continue to rise slowly,” said Jess Sharp, executive director of ABA’s Card Policy Council. “As a result, more Americans are in a better position to establish and build credit. Card issuers are working to serve these individuals, often easing them back into the market at lower credit lines that can rise over time with a good payment history.”
The ABA report also found the share of accountholders who carry a monthly balance (“revolvers”) rose 0.4 percentage points to 43.7 percent of all accounts. The share of accountholders who pay their monthly balance in full each month (“transactors”) fell 0.1 percentage points to 29.1 percent of all accounts, while 27.2 percent of accounts were dormant.
Along with steady increases to the federal funds rate, the increase in revolvers is leading to a higher average effective finance charge yield (up 8 basis points to 11.47 percent). However, this metric — which measures interest payments relative to total outstanding credit in the market — has been mostly flat for the last five years and remains well below its high of 13.3 percent in early 2010.
Although monthly purchase volumes continue to rise across risk tiers, the data suggest that U.S. consumers are effectively managing their credit card debt. Measured as a share of disposable income, credit card credit outstanding ticked up to 5.46 percent due in part to seasonal factors, but remains near post-recession lows.
“This report continues a pattern that we’ve seen over the last few years,” said Sharp. “Millions of Americans who faced challenges during and after the recession are back on their feet, while younger Americans who struggled to enter the workforce during the recession’s aftermath have been helped by improved labor conditions. As a result, both groups are well-positioned to benefit from a credit card account and build credit.”