Credit Card Lending Growth Rate
Using official data published by the Bank of England, we have estimated the growth rate of the UK Credit Cards market within the next three years to be 7.63%. BBC found that credit card debt is growing at a much faster rate than other forms of personal debt. No data exists on the split into prime customers and near-prime customers, but we were able to identify some general information on the credit rating system in the UK. Please find our calculations and helpful findings below.
Definitions of consumer credit by the Bank of England
- The Bank of England (BoE) defines consumer credit as "borrowing by UK individuals to finance current expenditure on goods and/or services excluding loans issued by the Student Loans Company."
- The BoE splits consumer credit into two components: "credit card lending and ‘other’ lending (mainly overdrafts and other loans/advances)."
Credit Card growth rate
- In February 2018 the annual growth rate in outstanding credit card debt in the UK reached 8.3%, the highest in 12 years.
- "Credit card debt is growing at a much faster rate than other forms of debt, such as loans and overdrafts," according to the BBC.
- The latest data from UK Finance (October 2018) show that the growth rate for credit card amounts outstanding was at 8.6%
- The BoE provided the growth rate of total sterling net credit card lending to individuals, which was at 6.5% in February 2019.
Future projection based on UK finance data
- UK Finance stated that "In 2027 credit and charge card purchases are forecast to increase to 3.9 billion transactions, up from 3.1 billion in 2017. Values are projected to rise from £168 billion in 2017 to £180 billion in 2027."
- By looking at the 10-year forecasts, we can determine that the growth rate of the number of credit card transactions is 25.8% (3.9/3.1) and the 10-year forecast growth rate of credit card transaction values is 7.14% (180/168).
- By finding the average of current growth rates and projected growth rates, we can determine the most likely estimate of the growth rate of the UK Credit Cards market in the next three years. For the forecast growth rate, we have used the UK Finance growth rate for amounts outstanding, because it is more in line with growth rates found in other sources.
PRIME AND NEAR-PRIME CUSTOMERS
- Prime customers in the UK are considered to be those customers with an "excellent" credit score. UK citizens do not have a single, definitive credit score. Instead, three Credit Reference Agencies exist and each uses a different scale.
- Experian classifies individuals with a credit score between 961 and 1000 in the excellent category. Equifax classifies individuals with a credit score between 466 and 700 in the excellent category. TransUnion classifies individuals with a credit score between 628 and 710 in the excellent category.
- During our research we came across a number of sources that provide a forecast of the growth are of the UK Credit Cards market, but the sources exist behind a paywall so we were unable to access them. Tables 67 and 68 of the Euromonitor report contain forecasts of the growth until 2023. The report by IBIS World contains forecast of the growth of credit card issuance up to 2024. Finally, a Mintel report contains forecasts of gross credit card lending until 2023.
In order to identify the growth rate split into prime and near-prime customers, we first consulted financial news outlets and the general press. We have searched through sources like the Financial Times, The Motley Fool, UK Finance, Reuters, Guardian and others. While we were able to identify some information about unsecured credit in the UK, we were unable to find what percentage of UK borrowers have a prime credit rating. We did, however, find how prime customers are defined in the UK.
Then, we proceeded to look at government resources like HM Treasury, the Financial Conduct Authority and the Bank of England. While the government resources provided a wealth of information on the growth rates for lending in general and for personal loans specifically, none of the sources mentioned prime credit ratings at all, let alone the split of growth rates into prime and near-prime customers.
Finally, we tried to calculate the split of the growth rate ourselves. To do this, we tried to find how many UK borrowers fall into the "excellent" credit rating category. However, no statistics on the number of prime customers in the UK exist in the public domain. The most likely reason for the lack of data lies in the fact that UK citizens do not have a single, definitive credit score. The three rating agencies that operate in the UK use different scales, so a certain citizen's credit score can be rated as "excellent" by one agency and just "good" by another.