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Consumers with the best credit boosted their card spending in Q3, says ABA

Summary

Super-prime accounts – those that consumers with the best credit hold – saw record purchase volume growth of 10 percent in the third quarter of 2018, according to the American Bankers Association.

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Super-prime accounts – those that consumers with the best credit hold – saw record purchase volume growth of 10 percent in the third quarter of 2018, according to the American Bankers Association.

In its January 2019 Credit Card Market Monitor, the ABA found consumers used their credit cards more during 2018’s third quarter, year-over-year.

Purchase volumes for super-prime accounts grew significantly, increasing the strongest year-over-year in almost eight years. Purchase volumes for subprime accounts also rose, but they stayed the same for prime accounts.

New account numbers rose, but more slowly

The ABA data also showed that the total number of credit card accounts rose during the same period of time – from July through September 2019 – only more slowly year-over-year.

Total new accounts, which the ABA defines as cardholders opening in the “previous 24 months,” decreased almost 6 percent from just a year ago, with a serious downturn in consumers opening fresh prime and subprime accounts.

Credit lines increased

Although super-prime accounts’ average credit lines remained the same, prime and subprime average credit lines rose on a quarterly basis. New subprime accounts’ average credit lines rose by 2.4 percent from 2018’s second quarter. New prime accounts’ average credit lines fell by 0.9 percent and super-prime average credit lines fell by 1.2 percent since the second quarter.

“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,” Jess Sharp, executive director of ABA’s Card Policy Council, said in a news release.

“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,” Sharp added.

See related: Fed: Card balances jumped by $4.8 billion in November 

Number of \u2018transactors’ fell in third quarter

The share of transactors – those who pay their balances in full each month – fell 0.2 percentage point to 30.2 percent in 2018’s third quarter. However, 30.2 percent is still the second highest number since 2008, when the ABA started tracking that data.

Dormant accounts’ share fell to 25.6 in the third quarter as well, a 10-year low. And revolvers – those who keep a monthly balance on their cards – increased their share to 44.1 percent, a 0.4 percent increase from the second quarter.

Interest payments relative to card debt rose slowly

In quarter three, credit card credit outstanding as a share of disposable income ticked up to 5.42 percent (.04 percent), but has not grown a lot over the last six years and remains 2-3 percentage points below where it was before the Great Recession.

In addition, the Fed’s interest rate increases have raised the effective finance charge yield – which shows interest payments relative to the market’s total outstanding credit. But the yield increased more slowly than the Fed’s rate – it rose by .24 percent to 12.8 percent in the third quarter. This might mean that as consumers better manage their credit card debt, it somewhat offsets interest rates that are creeping up.

“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,” Sharp said.

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Published: January 28, 2019

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