Dive Brief:

• Highlighting consumers’ reliance on credit cards, consumers who were more than 90 days past due on their cards continued to add to their credit lines between Q3 2019 and Q4 2021, according to a TransUnion study of nearly six million consumers. The credit reporting bureau disclosed the results in an Oct. 6 press release.
• During that period, consumers who were 90 days late on their credit cards decreased the amount paid beyond the minimum payment, but consumers who were current on their bank cards increased the amount paid beyond the minimum payment. Consumers’ decline in liquidity started 12 months before severe delinquency and increased across all credit tiers, the study revealed. 
• Most consumers reached 30 days past due three months prior to serious delinquency, a sign that segmenting customers based on their liquidity changes nine months to a year beforehand is useful, TransUnion said in the study.

Dive Insight:

Midway through this year, there were about 500 million bank-issued credit cards in circulation, compared to about 465 million in 2021, according to TransUnion. At the halfway point this year, delinquency rates rose to 1.57% and the average balance per consumer was $5,270 — a notable increase over 2021, but still below pre-pandemic levels, the credit reporting agency said.

Despite the current climate of economic uncertainty, major card issuers have thus far dodged high delinquencies. COVID-19 financial assistance enabled many cardholders to pay down balances, thereby lowering credit card balances and delinquencies, TransUnion noted. However, delinquencies are beginning to creep up as inflation and rising interest rates stress consumers.

Card company American Express reported a delinquency rate of 0.8% for August, ticking up from 0.7% in July and June, according to the company’s Sept. 15 filing with the Securities and Exchange Commission. Rival Discover Financial Services’ delinquency rate as of Aug. 31 was 1.96%, up from 1.42% at the same time last year, per the company’s latest SEC filing.

After the company released Q2 earnings, Amex Chief Financial Officer Jeff Campbell said the company is using a “highly analytical process” to assess new customers. He added that the company anticipates delinquency rates to increase, but not exceed pre-pandemic levels. Other card issuers, like Synchrony Financial and Bank of America,  have recently reported increases in delinquencies. 

Research also suggests consumers’ debts are rising. Per a survey from the Federal Reserve Bank of New York released Sept. 12, the mean probability of being unable to make minimum debt payments over the next three months rose from 10.8% in July to 12.2% in August. 

As higher prices lead some consumers to rack up more debt, interest rates are also on the upswing. A Bankrate report issued Sept. 1 found that the average U.S. credit card interest rate is 17.96%, the highest rate on record since 1996. Bankrate launched the survey in the 1980s.

Though consumers’ overall debt has seen an uptick, they appear to be placing less debt on primary credit cards. A J.D. Power survey released in August found credit cardholders are placing less than half (42%) of their monthly expenses on primary credit cards, a drop from 47% last year and 2020 and 50% in 2019. Those findings suggest consumers are spreading purchases across multiple credit cards or turning to alternatives like buy now-pay later payment options.