Credit card delinquencies among American consumers increased slightly in July 2024, according to a report by Seeking Alpha. The average delinquency rate rose to 2.66%, up from 2.63% in June. Despite this marginal increase, the rate remains lower than the 2.87% recorded in July 2023 and 2.68% in July 2019, prior to the COVID-19 pandemic.
Alongside this, the average net charge-off rate, which reflects debts considered uncollectable, fell from 3.8% in June to 3.63% last month, down from 4.09% a year ago. However, this figure is still above the pre-pandemic rate of 3.59% noted in July 2019.
Analysis of Delinquency Trends
The report highlighted anomalies within specific financial institutions. For example, Bread Financial reported notable delinquency rates of 5.7% and 5.8% for June and July, respectively, alongside charge-offs decreasing from 7.8% to 7.6%. In contrast, other major institutions such as American Express, Capital One, JPMorgan Chase, Bank of America, Synchrony, and Citigroup experienced lower delinquencies and stable charge-offs.
Banks have adjusted their lending criteria, making it more challenging for lower-income consumers to secure credit cards. Rather than easing their standards, financial institutions are tightening them, focusing on higher creditworthiness.
Despite these challenges, subprime borrowers show a marked interest in obtaining new credit cards, with a recent report from PYMNTS indicating they are 3.6 times more likely to seek credit than those with top-tier credit scores.
Consumer Behavior and Economic Pressures
Recent earnings reports from financial firms reveal that consumers, including those with subprime credit ratings, are largely managing their debt obligations. Yet, there are indications of financial strain due to persistent inflation and a fluctuating economic climate.
Richard Fairbank, CEO of Capital One, commented on the situation, stating that while the U.S. consumer is generally in a good position, there are “some pockets of consumers [that] are feeling pressure from the cumulative effects of inflation and higher interest rates.” He added that lingering effects from the pandemic are still evident, though trends in delinquency rates suggest a moderation of these impacts.
Further insights from the credit industry suggest that the traditional approach to evaluating creditworthiness may need reevaluation. Jason Tinurelli, Chief Marketing Officer of Concora Credit, emphasized that the current binary system of credit approval often alienates potential borrowers. He remarked, “Customers can identify themselves before they walk in the door. What they really are looking for from you is some sort of hint that you have more options available for people with less-than-perfect credit.”
As the landscape of credit continues to evolve, financial institutions face the challenge of balancing risk management with accessibility for consumers of varying credit backgrounds. The data reflects a complex picture of consumer behavior and economic realities, underscoring the need for adaptive strategies in the credit industry.
