Card Delinquencies Creep Up as Consumers Rely More on Credit

That’s according to the latest edition of Seeking Alpha’s Credit Pulse, published Friday (July 24) and tracking monthly delinquency and charge-off rates at American Express, Synchrony, Bread Financial, Capital One, Citigroup, JPMorgan Chase and Bank of America.

The report showed the average delinquency rate climbing from 2.47% in May to 2.48% in June. That’s below the three-month average of 2.50%, and far less than levels recorded last June (2.67%) and before the pandemic (2.68%).

The average net charge-off rate fell from 3.63% to 3.42% between May and June, with a three-month moving average of 3.58%. Before the pandemic, the rate was 3.59%, while the net-charge off rate for June of last year came to 3.85%.

“During the pandemic, many consumers paid down their credit card debt entirely,” said Elizabeth Renter, NerdWallet’s senior economist. “Since then, however, debt levels have climbed and surpassed pre-pandemic levels. High inflation means they may be relying on their credit cards to maintain a lifestyle they can’t really afford.”

But this doesn’t mean consumers are purchasing luxuries, as some households might turn to credit as an emergency fund to pay for essentials when money is tight, Renter said.

“With credit card interest rates high and savings spent down, people are likely having a hard time keeping up on these payments,” she added.

The report noted that consumer confidence in the U.S. increased less than anticipated in June, per data from The Conference Board.

“Consumer appraisals of current business conditions were slightly more positive compared to last month. However, perceptions of the current labor market softened measurably as the percentage of consumers saying jobs were ‘hard to get’ rose to 22.5%, the highest level since January 2021 (22.8%),” said Dana Peterson, chief economist at The Conference Board.

Meanwhile, research by PYMNTS Intelligence finds that consumers have become less positive about their current finances and their ability to manage their debt since December.

However, research also shows that caution hasn’t driven consumers away from using credit cards, with 66% of millennials saying they used cards for retail purchases in the last 12 months, just behind the 70% who used debit cards.

“The pattern suggests that consumers are making distinctions between spending more and having more ways to fund spending,” PYMNTS wrote recently. “Credit can provide additional purchasing capacity, but it also gives consumers control over when cash leaves their accounts. For those who pay their statement balance in full, cards can provide that timing flexibility without revolving interest.”