Sub-prime credit card applications rocket in autumn bounce back

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New credit card accounts plummeted following the start of the first UK lockdown, but potentially riskier sub-prime approvals have bounced back hardest, more than doubling since August 2020, according to data from the new Equifax Market Pulse series.

The overall volume of new credit card accounts bottomed out in May, 86% below March levels when UK lockdown measures first began. The fall was sharpest among near-prime credit card accounts (91%), followed by prime and sub-prime (86% and 85% respectively). In September new accounts were down by 60% overall since March, with the highest drop in prime accounts, down by 82%.

However, new sub-prime accounts are recovering strongly, with a jump of 143% from August to September, compared to a more modest increase of 64% across all credit card categories.

While the total volume of new sub-prime accounts remains less than half of levels at the start of lockdown in March, the average credit limit has risen by 12% since its trough in July.

Across all cards, average credit limits are down by 36% since March, equivalent to over £1,000.

Paul Heywood, Chief Data & Analytics Officer at Equifax UK, said: “The accelerated rate of adoption within sub-prime products is a warning sign that an increasing number of consumers may be facing financial difficulty. While the credit limits associated with these accounts are lower than average, the resulting cost of borrowing can still represent a significant proportion of an individual’s income, particularly in an environment where nearly a third of adults have suffered a fall in overall household income2.

“COVID-19 government support schemes have provided a level of protection for many people, but there is undeniably a growing financial divide within the UK. With the proportion of furloughed employees highest among the lowest quartile of earners and households on lower incomes most likely to have leant on their savings during the first lockdown3, the FCA now estimates 12 million Britons will struggle to repay debt or cover their bills2. With a further national lockdown now in force the financially vulnerable may face a challenging period ahead.”

New Equifax Market Pulse webinar series

Equifax has launched a bimonthly Market Pulse webinar drawing on the company’s big data capabilities to provide a regular snapshot of credit trends. These sessions offer analytics and trend insights on the financial health of UK consumers and businesses to help financial organisations navigate current uncertainty. You can access webinar recordings and find out more about Equifax market Pulse here. Equifax customers can also access Market Pulse data to conduct their own more detailed analysis across financial product types, including access to a variety of macro-economic overlays, via Equifax Ignite apps. Market Pulse data is sourced from the Equifax Insights closed user group of around 600 creditors.