Over ten percent of credit card outstanding debt is over 90 days delinquent. Banks will be curtailing credit…
This a second look at some interesting charts from the New York Fed Quarterly Report on Household Debt and Credit.
Over 10 Percent of Credit Card Debt is Seriously Delinquent
Serious Delinquency for Auto Loans by Age
Serious Delinquency for Credit Cards by Age
Lenders Took More Risk
The Consumer Financial Protection Bureau (CFPB) reports Credit Card Delinquencies are Higher than in 2019 Because Lenders Took on More Risk.
After falling during the pandemic, the share of consumers with a delinquent credit card has increased rapidly since 2021 and is now higher than in 2019. While consumers with delinquencies clearly show signs of struggling, news reports have taken the rising delinquency rate as a sign that financial distress is becoming more widespread, suggesting underlying weakness in the U.S. economy. We show that rather than being a sign of broader distress, this increase in delinquencies is explained by a substantial increase in the riskiness of recently issued credit cards.
Delinquencies have been concentrated among credit cards originated in the last few years and we show these credits cards were much riskier than in previous years. Two factors explain this extra risk: First, lending standards loosened a bit in 2021 and 2022 judging by a decline in credit scores at origination. At the same time, pandemic aid and forced savings pushed average credit scores up sharply. Effectively, by not tightening significantly, lenders were originating cards much further down the risk spectrum. We show this shifting risk composition explains why delinquencies are higher than in 2019.
Overall delinquencies increased rapidly over the last few years because the credit cards originated in 2021, 2022, and 2023 have gone delinquent much more rapidly than credit cards originated in other years. About 8 percent of credit cards originated in 2016 became delinquent about four years after origination. Meanwhile, the 2021 vintage reached an 8 percent delinquency rate just after 2 years while the 2022 vintage reached 8 percent after less than two years and 2023 has followed 2022 closely so far. (The 2020 vintage is in between the pre-pandemic and post-pandemic vintages reaching 8 percent delinquency after 3 years.) At the same time, credit cards originated in earlier years have not seen a similar increase in delinquencies in recent years.
And here lays the problem. If you have a good to excellent credit score and a good income to debt ratio, the banks, loan companies, credit card companies will damn near give you all the money ( debt ) you can handle. Some of these people fall into the category of ” to much good credit ” as I heard from an interview with a bankruptcy judge. Dave Ramsey said something to the affect ( and I’m not quoting ) , if you have very good to excellent credit rating, you are in bed with these types of loan companies and are just playing their games.
I’ve paid off my car loan, two personal loans, five credit cards and my credit score crashed. The only debt I have is my mortgage. I now pay cash for everything. And the credit score people don’t like that. I constantly keep getting offers for loans and credit cards saying by getting one ( or two ) will help boost my credit score. When I was in debt, I had a very good credit score. And now that I paid everything off, it’s down significantly. This country runs on debt. From the federal government, all the way down to the lonely consumer.
I no longer owe my soul to the company store.