UK credit card balances hit record GBP £1,895 as repayments drop

The average active balance on UK credit cards has risen to GBP £1,895, representing a 5.1% increase year-on-year, according to analysis by FICO.

Rising balances

Despite a seasonal reduction in spending in July, the data indicates that balances continued to grow. Consumers spent an average of GBP £800 on their credit cards in July, down by 2.9% from the previous month and 1.6% lower than in July the previous year. Nevertheless, average balances continued to edge higher, rising 0.4% month-on-month in addition to the 5.1% year-on-year increase.

This rise in average balances is occurring alongside a notable decline in the percentage of balances being paid off by cardholders. The proportion of the outstanding balance repaid by customers fell by 7.7% year-on-year, reaching 34.9%. FICO attributes this trend to ongoing affordability challenges faced by many UK consumers, which could present increased risks for lenders.

Following the peak in June, spending on credit cards fell to an average of £800 in July. While a drop in spending is typical at this time of year, the fact that it is 1.6% lower year-on-year could reflect overall pressure on consumer finances. Lenders will be concerned, however, that even though spending was lower during the month, the average active balance continued to trend up. Early identification and support for those customers who are in the earliest stage of financial difficulties, amongst those with an increasing balance, will help to mitigate risk and support profitability.

Missed payments

Missed payments remain a concern for both lenders and consumers. While there has actually been a drop in the number of customers missing payments year-on-year, the average missed payment balance has continued to trend upwards.

In July, 10.1% more customers missed one payment compared to June, with the average balance for these customers at GBP £2,385, a 6.4% rise over July 2024. The rate of customers missing one payment increased to 1.39% in July, a 10.1% month-on-month increase, despite being 10% lower year-on-year due to downward trends over the past 12 months.

The percentage of customers missing two payments remained stable at 0.3% in July, decreasing slightly month-on-month by 1% and year-on-year by 5.1%. The average balance for these accounts saw a minor drop of 0.4% month-on-month, but rose by 6.9% compared to the previous year, reaching GBP £2,875. For those missing three payments, the average balance increased by 3.1% month-on-month and 8.1% year-on-year, now standing at GBP £3,300.

Indicators of financial stress

An additional warning indicator noted by FICO is the percentage of customers using credit cards to withdraw cash. This figure rose by 1% month-on-month to 3.21% in July, a trend that typically intensifies during summer months and is anticipated to continue through August and September before declining in autumn.

FICO's analysis also finds that, when comparing delinquent balance rates to overall balances, the ratio is incrementally rising for customers missing one or two payments, with a more noticeable increase among those missing three payments.

Managing risk

The findings suggest that lenders should continue to monitor and review limit strategies, particularly in relation to customers who may be showing early signs of financial strain. FICO notes the importance of identifying and supporting these customers at an early stage as a means of mitigating risk and supporting good customer outcomes.

Another area of concern for lenders is missed payments. Year-on-year there has been a drop in the number of customers missing payments. However, the average missed payment balance continues to trend upwards.

FICO recommends that risk teams consider reviewing credit card limits to ensure that accounts at greater risk of missing payments are not offered limit increases. Prioritising the identification and treatment of customers entering financial difficulties may help lenders manage the underlying risk to their portfolios.

FICO's report, which is based on data from approximately 80% of UK card issuers, continues to monitor key trends to assist lenders in shaping collections and risk management strategies as pressures on consumer finances persist.