May 14, 2024 - Economy

Credit card delinquencies are increasing

A line chart that shows the quarterly share of credit card balances transitioning into delinquency from Q1 2003 to Q1 2024. The percentage starts at 12.32% in Q1 2003, decreases to a low of 5.07% in Q2 2016, then increases a bit before plunging to 4.1% in Q4 2021 then soaring upwards to 8.93% in Q1 2024.
Data: New York Federal Reserve; Note: Shows share of balances where payments are at least 30 days late; Chart: Axios Visuals

An increasing share of Americans fell behind on their credit card payments at the beginning of the year, according to data out Tuesday.

Why it matters: Rising credit card troubles are a sign that some consumers are feeling more financial stress — a worrying indicator for an economy that's been powered by strong consumer spending.

The big picture: It's also a bit puzzling that delinquencies are rising, hovering at rates last seen during the Great Recession, at a time when the economy is strong and unemployment rates are low.

  • It's likely that high inflation and rising interest rates are starting to hurt lower-income Americans — particularly renters.

By the numbers: An annualized 8.9% of credit card balances and 7.9% of auto loan balances moved into delinquency status in the first quarter of 2024, according to the New York Fed's quarterly report on household debt and credit.

  • Though credit card balances overall fell slightly in the first quarter as Americans paid off their holiday spending, they're still 13% higher than last year.
  • The average credit card charges a near-record 20.66% interest rate, per Bankrate. And 44% of borrowers carry a balance from month to month.

Zoom in: New York Fed officials said they weren't sure exactly why delinquency rates were rising, but on a call with reporters Tuesday, they offered a few possibilities:

  • It could be that Americans increased their spending in the pandemic period when their savings were flush — and are now continuing to spend at elevated rates, even as that money is gone.
  • The higher delinquency rate reflects an increase over the past few years in lending to borrowers with lower credit scores (the subprime category).
  • Another possibility: As student loan payments stopped being reported to credit bureaus, some people's credit scores "artificially went up" and that could've expanded the pool of people eligible for credit cards and auto loans.

Reality check: Other kinds of debt, particularly mortgages, have very low delinquency rates and are below pre-pandemic levels.

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