Credit Card Delinquencies Rise Slightly but Remain Stable
Credit card delinquencies among American consumers increased marginally in July 2023, although they remain below pre-COVID levels. The average delinquency rate rose to 2.66% in July, up from 2.63% in June, according to a report by Seeking Alpha. This figure is notably lower than the 2.87% rate recorded in July 2022 and 2.68% in July 2019, prior to the onset of the pandemic.
At the same time, the average net charge-off rate, which represents debts deemed uncollectible, decreased from 3.8% in June to 3.63% in July. This rate also shows a decline from 4.09% in July 2022, although it remains above the pre-pandemic level of 3.59% noted in July 2019.
Key Trends Among Major Financial Institutions
The report highlights that outside of Bread Financial, which reported delinquency rates of 5.7% and 5.8% in June and July, the remaining six major companies monitored—American Express, Capital One, JPMorgan Chase, Bank of America, Synchrony, and Citigroup—saw delinquency rates increase while net charge-offs remained lower.
Recent trends indicate that banks are tightening their lending criteria, making it more challenging for lower-income consumers to obtain credit cards. This shift comes despite subprime borrowers being 3.6 times more likely to express interest in acquiring new credit cards compared to those with higher credit scores, as reported by PYMNTS.
Consumer financial performance has been mixed. While recent earnings from various financial firms suggest that consumers, including those with subprime credit, are managing their debt, some are experiencing strain due to ongoing inflation and economic uncertainty.
Industry Perspectives on Credit Access
Richard Fairbank, CEO of Capital One, stated that while the U.S. consumer is generally in a favorable position, “there are some pockets of consumers that are feeling pressure from the cumulative effects of inflation and higher interest rates.” He noted that there are still delayed charge-off effects stemming from the pandemic, although trends indicate that delinquencies are improving.
In a recent discussion with PYMNTS, Jason Tinurelli, Chief Marketing Officer of Concora Credit, expressed concerns about the credit industry’s binary approach to evaluating creditworthiness. He argued that this model can alienate potential consumers rather than provide them with viable options. “Customers can identify themselves before they walk in the door,” Tinurelli explained. “What they really are looking for is some sort of hint that you have more options available for people with less-than-perfect credit.”
As the landscape of consumer credit continues to evolve, the balance between risk management and accessibility remains a critical issue for financial institutions. With delinquencies below pre-pandemic levels, the industry is navigating a complex environment shaped by economic pressures and changing consumer behavior.
