The credit card market showed continued growth in the fourth quarter, with gains in monthly purchase volumes, new accounts, and higher interest rates, according to the American Bankers Association’s latest Credit Card Market Monitor.
Purchase volumes for subprime cards were up 5.1 percent in the fourth quarter, while prime jumped 8.5 percent, and super-prime climbed 9.7 percent. A solidifying labor market and rising wages drove the gains.
“The unemployment rate has been below five percent for nearly a year, and wages continue to rise slowly,” Jess Sharp, executive director of ABA’s Card Policy Council said. “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 April 2017 Monitor also found that account volumes continued to increase. 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. Subprime accounts comprise roughly one-fifth of total open accounts — equivalent to 2012 levels.
Increases to the federal funds rate, along with a higher percentage of people who carry a monthly balance, has led to a higher finance charge yield of up eight basis points to 11.47 percent. 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 below its high of 13.3 percent in early 2010.
Credit card credit outstanding also increased 5.46 percent due in part to seasonal factors, but remains near post-recession lows.
Average credit lines also rose across risk tiers in the fourth quarter. Among new accounts, super-prime cardholders saw the largest increase — up 2.7 percent to $10,202 in the quarter, while prime increased 2.0 percent to $5,571 and subprime went up 1.1 percent to $2,536.
The share of accountholders who carry a monthly balance additionally 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 fell 0.1 percentage points to 29.1 percent of all accounts, while 27.2 percent of accounts were dormant.
“This report continues a pattern that we’ve seen over the last few years,” Sharp said. “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.”