As part of our new quarterly series, U.S. Economic and Credit Trends Outlook, Equifax is sharing fresh insights and information about current economic conditions. We hope this regular update can help you optimize performance, growth and profitability across all areas of your business by giving you a fresh, current snapshot of the economy and key consumer trends.
Today’s article offers unique visibility into specific consumer credit behaviors and economic health by comparing and contrasting general activity and trends for bankcards and private label credit cards, also known as retails cards, from 2008 through January of 2017. All information included here is provided by Equifax as part of our regular Credit Trends report and our quarterly investor relations report.
Current activity for both bankcards and private label cards looks good, remaining fairly steady across areas of origination, utilization rates and write offs, which is reflective of a good economic cycle. In fact, bankcards have largely recovered from the Great Recession with outstanding balances hovering near pre-recession totals. On the other hand, outstanding balances are steadily rising for private label cards, but the number of accounts has remained level, showing very little growth.
Let’s pause here for two quick distinctions. Compared to bankcards, private label cards only represent 10 percent of the card market. It’s also important to note that consumers use private label cards differently than bankcards, which helps explain the steady level of account growth and originations (mentioned later). People often use private label cards to buy specific big-ticket items such as furniture or electronics as a way of keeping those purchases separate from their everyday expenses. Then, they pay off the card and sometimes even close the account, or stop using the card until the lender closes it due to lack of use. This helps explain the slow account growth within private label cards and other activity referenced in this article.
Utilization rates for bankcards have remained fairly steady since 2011, hovering between 21 percent and 22 percent, while credit limits have been on a slow, gradual rise. This shows consumers are being frugal with their use of bankcards and exercising prudent use of credit limits as they keep utilization rates low. Similarly, private label card utilization rates have been somewhat consistent showing a slight increase; however, the utilization rate for private label cards remains lower than bankcards. This is mostly due to people opening the cards and using them for specific purchases as mentioned earlier.
Origination rates for bankcards are accelerating. As of November 2016 (the latest data available due to card reporting processes), bankcard originations grew at 11 percent year-over-year, year to date. Strong growth is expected to continue through December 2016 and into 2017. Conversely, private label card originations were down 2 percent year-over-year, year to date in November 2016.
Credit risk at origination is remaining steady for bankcards, with “tail risk,” meaning the worst 10 percentile Equifax Risk Score for new accounts opened, running consistent at about a 590 risk score since 2008. Median risk scores have also remained level at about 710. However, private label cards are showing more aggressive tail risk with scores hovering between 570 and 620, and median risk scores decreasing to around 680.
Write-off rates for bankcards have remained steadily lower at around 30 basis points, though they started rising slightly toward the end of 2016 into 2017. Private label cards take on more risk as noted earlier. Due to this fact, they show higher write-off rates that are consistently hovering between 60 to 85 basis points with balances being higher than the number of accounts. Private label card providers might reconsider their verification process and other risk mitigation steps they can take to lower these rates. But, in general, the current write-off activity is not worrisome; instead, it’s indicative of a good economic cycle.
Helping you grow and protect your business—it’s our goal at Equifax. For more information about the many ways we can help, please visit us at www.Equifax.com/credit-trends.
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