Consumer credit recovery continued in fourth quarter

The consumer credit recovery continued in the fourth quarter of 2020, building off trends established last fall, according to the American Bankers Association’s latest quarterly Credit Card Market Monitor. Monthly purchase volumes improved across risk groups for the second consecutive quarter as the share of revolvers (those who carry over a monthly balance) hit a new record low. 

The May 2021 Monitor, which reflects credit card data from October to December 2020, found that monthly purchase volumes continued to rise after bottoming out in the second quarter of 2020, increasing 7–9% quarter-over-quarter across risk tiers while approaching pre-pandemic spending levels. Meanwhile, credit card credit outstanding as a share of national disposable income rose by 13 basis points to 4.67%, though it remains near an all-time low and 85 basis points below its level one year ago.

The share of cardholders who are transactors (those who pay their monthly balance in full) rose 1.4 percentage points to 35.1%, setting an all-time high for the third straight quarter. At the same time, the share of revolvers fell another 1.0 percentage point in the fourth quarter to 39.7%, falling below 40% for the first time. Meanwhile, the share of dormant accounts ticked down 0.5 percentage point to 25.2%.

The effective finance charge yield (which measures interest payments relative to total outstanding credit in the market) ticked up 5 basis points in the fourth quarter to 12.38%, though it remains well below the pre-pandemic level.

“As 2020 came to a close, consumers were generally flush with cash after months of conservative spending and multiple rounds of federal Economic Impact Payments,” said ABA Senior Economist Rob Strand. “The growing share of transactors and shrinking share of revolvers underscores the strong liquidity position of consumers as the economy was beginning to rebound.”