According to a report from the Federal Reserve Bank of Philadelphia, credit-card delinquency rates in the US have reached their highest level in a decade. The report states that 3.2% of card balances were at least 30 days past due as of September. This increase in delinquency rates indicates that US households are facing financial challenges and their finances are on shaky ground.
The credit card delinquency rates had reached historic lows in the second quarter of 2021 but have been steadily climbing since then. This trend reflects "greater consumer fragility," as noted by economists at the Philadelphia Fed. Additionally, the report highlights that total revolving credit card balances have increased from their pandemic lows.
The economists also observed changes in spending behavior. The share of revolving balances as a proportion of the overall balance has risen from 65% in 2021 to 70% in the third quarter of 2023. Moreover, the share of accounts making full payments has decreased, driven by strong consumer spending and reduced government support. However, it remains higher compared to pre-pandemic levels.
In response to this deterioration, banks are granting fewer credit line increases and reducing credit lines more frequently, according to the Philadelphia Fed. The report also reveals that around 10% of credit-card borrowers owe more than $5,000.
This increase in credit card delinquencies and the inability to make timely payments can be attributed to several factors. Matt Schulz, the chief credit analyst at LendingTree, suggests that the rising prices in recent years have put a strain on the average American's budget. Furthermore, higher interest rates have made it more challenging for people to meet their financial obligations.
A separate report from LendingTree found that between July 1 and September 30, 2023, 29.6% of Americans in the largest 100 US metros were behind on at least one debt payment. Additionally, over 27% had payments delinquent by 90 days or more.
Overall, the data indicates that US households are experiencing difficulties in managing their credit card debts, with delinquency rates reaching the highest level in a decade. The combination of increased revolving balances, reduced full payments, and rising interest rates has put pressure on Americans' financial stability.