Dive Brief:

• Even amid a “notable decline” in consumer credit demand this year, the credit card application rate remained robust, according to the Federal Reserve Bank of New York’s Center for Microeconomic Data.
• The rate at which consumers reported in October that they had applied for a credit card during the prior 12-month period reached 29%, higher than its October 2022 level of 27.1% and 27.2% in October 2019, according to results from the New York Fed’s latest consumer expectations survey on credit access, released Monday.
• This year’s average rejection rate for credit card applications also rose, by 1.1 percentage points, to 19.6%. In the coming year, consumers are less likely to apply for new credit and they expect a higher chance of a credit application being rejected, the New York Fed said.

Dive Insight:

Applications for credit card limit extensions also rose, and rejection rates for those applications fell. Credit card balances reached $1.08 trillion in the third quarter, a 4.7% quarterly increase, the New York Fed said earlier this month.

Beyond credit cards, though, credit application rates overall softened, and rejection rates on credit applications increased, the New York Fed said. The credit products included in the New York Fed’s survey include credit cards, credit card limit increases, auto loans, mortgages and mortgage refinancing.

This year’s credit application rate is 41.2%, which is “well below” last year’s 44.8% and 2019’s 45.8%. Rejection rates for all types of credit ticked up: Among applicants, rejection rates rose by 2.1 percentage points to 20.1% this year, from 18.0% last year, the New York Fed said. That level in pre-pandemic 2019 was 17.6%.

The New York Fed also noted a modest increase in the “financial fragility” of U.S. households. The average reported probability of coming up with $2,000 for an unexpected expense within the next month dropped to 65.8%, its lowest level since 2013, the release said. At the same time, the average probability of needing that amount of money for an unforeseen cost in the next month rose to 33.4%, from 32% last year.

Consumers have leaned on credit cards more in recent months as they’ve faced higher costs of goods and services. More recently, the resumption of student loan repayments has stressed financial situations for some. 

Still, consumers expressed a lower likelihood of seeking out a new credit card in the coming months. The average likelihood of applying for a credit card in the next year dipped to 12.7% in October, from 13.6% last October, the survey results revealed. The New York Fed’s survey, fielded three times per year, is an internet-based survey of a rotating panel of about 1,300 household heads.

As more consumers grapple with “financial fragility,” some are struggling to make their credit card payments. That’s led credit metrics to slip this year and edge closer to or exceed pre-pandemic levels. 

For credit card issuers JPMorgan, Bank of America, Citi, American Express, Capital One, Discover Financial Services, Synchrony Financial and Bread Financial, 30-day delinquencies were up 131 basis points year-over-year in October, to 4.03%, according to a Nov. 16 William Blair note to investor clients. 

Charge-offs for that group rose 189 basis points year-over-year, to 4.54%. A charge-off refers to a debt the lender has written off as a loss.

Bread’s net loss rate reached 8% in October, compared to 6.1% last October, according to a Nov. 14 filing with the Securities and Exchange Commission. The company, which issues private label credit cards, reported its delinquency rate was 6.5% in October, up from 5.4% the same month last year. 

Bread is “experiencing pressure beyond seasonality given low FICO consumer struggling with payments due to inflation,” Oppenheimer Analyst Dominick Gabriele wrote in a Nov. 16 note to investor clients. 

Discover Financial Services’ charge-off rate for October reached 4.42%, according to a company filing Nov. 14 with the SEC. That’s up from 4.15% in September and 2.10% last October. 

Discover’s loan delinquency rate of 30 days or more in October edged up to 3.61%, from 3.41% in September and 2.23% last October, according to the filing. 

Amex, which caters to premium-oriented consumers with its annual fee products, has seen a slower pace of normalization in credit metrics. Amex’s net write-off rate for consumer cards was 1.9% in October, compared to 1.7% in September and .9% last October, according to an SEC filing. Its delinquency rate was 1.3% for October, the same rate as September and up from .9% in October 2022, according to an SEC filing.