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“Black” or “red” holiday?

Using bankcard utilization to forecast holiday spend

It’s officially November, and like me, you’ve probably noticed all the holiday promotions in your mailbox and inbox. With only a brief window of holiday shopping available, it’s a retailer’s race to get consumer discretionary dollars.

As we near the end of 2015, the U.S. economy continues to improve steadily, and consumers are cautiously optimistic about their financial well-being. National unemployment[i] is down to 5.1 percent, and while the Consumer Confidence Index®[ii] slipped to 97.6 in October, it is still higher than it was at the end of 2014.

So will the U.S. consumer spend more this holiday season? One way to measure this behavior is through bankcard utilization rates — i.e., how much of their available credit consumers use. Overall, average bankcard utilization didn’t show much movement in Q3 2015, averaging 20.6 percent, compared with 20.3 percent the year before (a 1.5 percent increase).[iii]

However, when we look at utilization rates by VantageScore® credit tier, we see not only varying year-over-year (YOY) changes among consumer risk segments, but, more importantly, significant disparity in the overall usage of available credit.

  Q3 2014 Q3 2015 YOY increase
Super Prime
(781-850)
5.5% 5.6% 1.8%
Prime
(661-780)
27.4% 27.8% 1.4%
Near Prime (601-660 63.8% 64.5% 1.2%
Subprime (501-600) 76.1% 78.4% 3.1%
Deep Subprime (300-500) 94.7% 97.6% 3.1%

Super-prime consumers use less than 6 percent of their available credit limits, while consumers in the deep-subprime tier use nearly every dollar allotted. So while we can’t yet determine how “black” this holiday season will be, we can predict that the lower a consumer’s credit tier, the more that consumer will rely on bankcards to fund his or her holiday shopping.

For more credit and market insights, join Robert Stone and I for a Webinar, Unique insights on consumer credit trends and outlook for the remainder of 2015.

[i]Bureau of Labor Statistics

[ii]The Conference Board

[iii]Experian IntelliView

VantageScore® is a registered trademark of VantageScore Solutions, LLC.