A new sign emerged this week showing the number of borrowers maxing out personal credit cards remains high, with delinquency rates on the rise, and younger borrowers particularly stretched.
Banks have signaled during recent shareholder earnings calls that their credit-card segments have weathered the worst of delinquencies. New industry-wide data from the Federal Reserve Bank of New York warns that defaults have likely not yet peaked.
According to the Fed, U.S. credit card balances stood at $1.12 trillion in the first quarter of this year, which was down slightly from the end of last year due to seasonality. Still, the balance total sticking above $1 trillion has captured attention. The figure cleared the $1 trillion mark for the first time ever in the second quarter of 2023.
Additionally, the Fed’s report showed that the percentage of credit card balances that fell into delinquency rose to nearly 9% last quarter, a rate not seen in more than a decade. High balances and rising delinquency rates during a period of relative economic strength and tight employment raise potential red flags for economists and policymakers.
“In the first quarter of 2024, credit card and auto loan transition rates into serious delinquency continued to rise across all age groups,” said Joelle Scally, regional economic principal at the New York Fed’s Household and Public Policy Research Division.
“An increasing number of borrowers missed credit card payments, revealing worsening financial distress among some households,” Scally said. Higher housing, healthcare, food and energy costs in particular have largely outpaced otherwise healthy wage gains, in broad terms.
Last quarter, the percentage of credit card debt that became “seriously delinquent,” indicated as at least 90 days past due, hit 6.86% after settling in near 3% as recently as two years ago, the New York Fed found.
Total household debt increased by 1.1% last quarter to $17.69 trillion, according to the report. That total includes mortgages and auto loans.
Capital One Financial CEO Richard Fairbank said during his organization’s earnings update in April that he believes credit trends in its card business are stabilizing when compared to historical benchmarks.
“We continue to see a settling out. We believe that for Capital One, I can’t speak for all card issuers, but we definitely have seen what we think is sort of a landing,” he said then.
Among Gen Z borrowers, about 1 in 6 was close to exhausting their approved credit capacity, compared with 4.8% of Baby Boomers, the Fed data showed.
In a separate report issued earlier this year, USAA compared savings account balances among its members aged 18-23 with card balances among the same group.
Overall, the average USAA savings account balance for members age 18-26 has climbed 28% from 2019 through 2023. But, in the last nine months of 2023, the average savings account balance decreased by 10% and that left 2023 as the first year in the last five for an annual decline.
At the same time, as of Dec. 31, 2023, the average monthly balance for a Gen Z cardholder with USAA was 9% higher than the previous year. And, on the average month in 2023, 37.8% of Gen Z USAA credit cardholders carried a revolving balance, reflecting a 3% YoY increase.
Credit bureau TransUnion in a report this month found that borrowers just out of college are carrying an average of about $2,800 in credit card debt. Adjusted for inflation, that’s about 25% more than young Millennials in the same age range a decade ago.
Rachel Koning Beals is Senior Editor with BAI.
