NEW YORK — While the U.S. economy is broadly healthy, pockets of Americans have run through their savings and run up their credit card balances after battling inflation for more than two years.
Credit card options are shown on a store’s door on Nov. 29, 2018, in Philadelphia. More Americans are running up their credit card balances; increasing numbers are falling behind on their debts.
Experts worry that members of these groups — mostly lower- and middle-income Americans, who tend to be renters — are falling behind on their debts and could face further deterioration of their financial health in the year ahead, particularly those who have recently resumed paying off student loans.
“The U.S. economy is currently performing better than most forecasters expected a year ago, thanks in large part to a resilient consumer,” wrote Shernette McLoud, an economist with TD Economics, in a report issued Wednesday. “However, more recently that spending is increasingly being financed by credit cards.”
Americans held more than $1.05 trillion on their credit cards in the third quarter of 2023, a record, and a figure certain to grow once the fourth-quarter data is released by Federal Deposit Insurance Corp. next month. A recent report from the credit rating company Moody’s showed that credit card delinquency rates and charge-off rates, or the percent of loans that a bank believes will never be repaid, are now well above their 2019 levels and are expected to keep climbing.
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These worrisome metrics coincide with the average interest rate on a bank credit card of roughly 21.5%, the highest it’s been since the Federal Reserve started tracking the data in 1994.
“Overall, the consumer is credit healthy. However, the reality is that there are starting to be some significant signs of stress,” said Silvio Tavares, president and CEO of VantageScore, one of the country’s two major credit scoring systems.
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A card reader is used at a drive-thru restaurant March 13, 2021, in Mount Prospect, Ill. Americans held more than $1.05 trillion on their credit cards in the third quarter of 2023, a record figure experts say is certain to grow.
Most analyses of Americans’ financial health tend to tell a tale of two consumers. On one side are the roughly two-thirds of Americans who own their homes and those who’ve invested in the stock market and done substantially well. They generally had the savings cushion necessary to weather high inflation. Delinquency rates on single-family homes remain at near historic lows and home prices have continued to climb.
But for the rest of America, things are looking rough.
“You have these noticeable pockets of consumers — mostly middle- and lower-income renters who have not benefitted from the wealth effect of higher housing prices and stock prices — who are feeling financial stress and that’s driving up these delinquency levels. They’ve been hit very hard by inflation,” said Warren Kornfeld, a senior vice president at Moody’s, in an interview.
Kornfeld, who co-wrote a report last week looking at the climbing levels of delinquencies, expects them to keep climbing this year.
Consumers’ financial health could play a big role in the 2024 election. President Joe Biden is running in part on his efforts to bring down costs for U.S. families. Republicans counter that Biden is to blame for higher costs in the first place.
One way to gauge this bifurcation of the American economy is by looking at the results of some major credit card companies. The customers of Capital One, Discover Financial and Synchrony have historically been those with lower credit scores, while American Express typically serves the wealthiest and well-to-do.
At Synchrony Bank, the largest issuer of retail co-brand credit cards, the charge-off rate jumped from 3.5% to 5.6% in a year. Meanwhile, roughly 4.7% of Synchrony customers are 30 days or more behind on their bills, which is also up from a year ago.
Discover’s customers are carrying $102 billion in balances on their credit cards, up 13% from a year earlier. Meanwhile, the charge-off rates and 30-day delinquency rates have climbed. Executives say they can see the impact of inflation.
“Think about a consumer that makes $50,000 a year,” said John Green, Discover’s chief financial officer, at an investor conference in December. “When inflation outpaces your wage growth, they’re making choices in terms of what they’re going to spend, what bill they’re going to pay and what they’re going to frankly put on their table.”
Inflation peaked at 9.1% in June 2022 and is now slightly above 3%. But the costs of many goods and services remains elevated. A loaf of bread that cost $1.54 in December 2020 cost $2.02 at the end of last year, and a gallon of gas has risen from an average of $2.17 to $3.29 in the same timeframe, according to the Bureau of Labor Statistics.
Renters in particular have felt the pinch. The median rent for a property with up to two bedrooms has jumped from $1,424 at the end of 2020 to $1,713 at the end of last year, according to realtor.com.
VantageScore’s Tavares worries that the recent reintroduction of student loan payments could more acutely impact these customers in their ability to repay their debts.
“Folks are scrambling to pay these obligations that they haven’t had to pay in three years, and it’s hitting exactly the demographic we are talking about here: the younger folk, less-affluent folk,” Tavares said.
2023 consumer debt levels grew, but not as severely as in 2022, according to Experian data
2023 consumer debt levels grew, but not as severely as in 2022, according to Experian data
![2023 consumer debt levels grew, but not as severely as in 2022, according to Experian data](https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/6/43/643e2250-de72-57ec-b9b8-ec332e8ed95f/65b959f655125.image.jpg?resize=150%2C100 150w, https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/6/43/643e2250-de72-57ec-b9b8-ec332e8ed95f/65b959f655125.image.jpg?resize=200%2C133 200w, https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/6/43/643e2250-de72-57ec-b9b8-ec332e8ed95f/65b959f655125.image.jpg?resize=225%2C150 225w, https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/6/43/643e2250-de72-57ec-b9b8-ec332e8ed95f/65b959f655125.image.jpg?resize=300%2C200 300w, https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/6/43/643e2250-de72-57ec-b9b8-ec332e8ed95f/65b959f655125.image.jpg?resize=400%2C267 400w, https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/6/43/643e2250-de72-57ec-b9b8-ec332e8ed95f/65b959f655125.image.jpg?resize=540%2C360 540w, https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/6/43/643e2250-de72-57ec-b9b8-ec332e8ed95f/65b959f655125.image.jpg?resize=640%2C427 640w, https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/6/43/643e2250-de72-57ec-b9b8-ec332e8ed95f/65b959f655125.image.jpg?resize=750%2C500 750w, https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/6/43/643e2250-de72-57ec-b9b8-ec332e8ed95f/65b959f655125.image.jpg?resize=990%2C660 990w, https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/6/43/643e2250-de72-57ec-b9b8-ec332e8ed95f/65b959f655125.image.jpg?resize=1035%2C690 1035w, https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/6/43/643e2250-de72-57ec-b9b8-ec332e8ed95f/65b959f655125.image.jpg?resize=1080%2C720 1200w)
In 2023, good credit collided with higher interest rates, and everyone—consumers, policymakers and bankers—held their collective breaths. While some economists were watching for an economic downturn, consumers largely kept their eyes on their own finances as interest rates on loans and credit cards climbed significantly.
By year’s end, it became clear the economic reality of 2023 was that of resiliency and not recession. As part of its ongoing review of consumer debt and credit in the United States, Experian examined representative and anonymized credit data from the third quarter (Q3) of 2023 to reveal some of the major trends in consumer credit. A few findings to consider as we begin:
- Consumer spending continued at a healthy pace. Average credit card balances increased by 10% in 2023, and retail spending remained strong. Talk of an economic slowdown yielded to a “soft landing” narrative in the business press, a story that had the Federal Reserve getting praise for beating back inflation without unduly slowing economic activity.
- Lenders became more discerning when deciding to extend additional credit. And for their part, some would-be homebuyers and home sellers decided to sit out the housing market entirely amid rising home prices and mortgage rates. Spending on some bigger-ticket items such as new cars also slowed as consumers balked at rising sticker prices and car loan rates that have plagued potential borrowers since 2022.
- Consumers are still willing to pay more to borrow in 2023. They indicated they have their limits, however, if the mortgage and auto loan markets are anything to go by. In addition, delinquency rates, while increasing, are still lower than in previous years. Consumers largely still have the wherewithal to repay their existing obligations, much of which were borrowed with low fixed-rate terms.
In this analysis, note that while rising interest rates adversely impacted nearly all borrowers, not every consumer credit market was affected in the same way.
Average credit score in the U.S. increases to 715
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As reflected in credit scores, creditworthiness remained broadly stable for most consumers in 2023. As of Q3, the average FICO Score in the U.S. was 715, a one-point increase from the same period in 2022.
Total debt rose, but increase is more apparent when mortgages are taken out of the equation
![Total debt rose, but increase is more apparent when mortgages are taken out of the equation](https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/7/30/730f7ccd-a84c-5cff-95b6-cd985356aec5/65b959f714804.image.png?resize=150%2C69 150w, https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/7/30/730f7ccd-a84c-5cff-95b6-cd985356aec5/65b959f714804.image.png?resize=200%2C92 200w, https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/7/30/730f7ccd-a84c-5cff-95b6-cd985356aec5/65b959f714804.image.png?resize=225%2C103 225w, https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/7/30/730f7ccd-a84c-5cff-95b6-cd985356aec5/65b959f714804.image.png?resize=300%2C138 300w, https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/7/30/730f7ccd-a84c-5cff-95b6-cd985356aec5/65b959f714804.image.png?resize=400%2C183 400w, https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/7/30/730f7ccd-a84c-5cff-95b6-cd985356aec5/65b959f714804.image.png?resize=540%2C248 540w, https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/7/30/730f7ccd-a84c-5cff-95b6-cd985356aec5/65b959f714804.image.png?resize=640%2C293 640w, https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/7/30/730f7ccd-a84c-5cff-95b6-cd985356aec5/65b959f714804.image.png?resize=750%2C344 750w, https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/7/30/730f7ccd-a84c-5cff-95b6-cd985356aec5/65b959f714804.image.png?resize=990%2C454 990w, https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/7/30/730f7ccd-a84c-5cff-95b6-cd985356aec5/65b959f714804.image.png?resize=1035%2C474 1035w, https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/7/30/730f7ccd-a84c-5cff-95b6-cd985356aec5/65b959f714804.image.png?resize=1080%2C495 1200w)
Meanwhile, average total debt balances increased by $2,300 to $104,215 in 2023. This 2.3% increase in total debt balance was modest relative to inflation, which grew by 3.7% over the same period.
Despite higher prices and rates, consumers seem both willing and able to service their existing debt, as well as assume additional debt without overextending themselves.
Debt service obligations remained steady
![Debt service obligations remained steady](https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/e/8d/e8d718a9-5d38-575b-a56a-6a68a6f80fa9/65b959f75e8bd.image.png?resize=150%2C104 150w, https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/e/8d/e8d718a9-5d38-575b-a56a-6a68a6f80fa9/65b959f75e8bd.image.png?resize=200%2C139 200w, https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/e/8d/e8d718a9-5d38-575b-a56a-6a68a6f80fa9/65b959f75e8bd.image.png?resize=225%2C156 225w, https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/e/8d/e8d718a9-5d38-575b-a56a-6a68a6f80fa9/65b959f75e8bd.image.png?resize=300%2C208 300w, https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/e/8d/e8d718a9-5d38-575b-a56a-6a68a6f80fa9/65b959f75e8bd.image.png?resize=400%2C278 400w, https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/e/8d/e8d718a9-5d38-575b-a56a-6a68a6f80fa9/65b959f75e8bd.image.png?resize=540%2C375 540w, https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/e/8d/e8d718a9-5d38-575b-a56a-6a68a6f80fa9/65b959f75e8bd.image.png?resize=640%2C444 640w, https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/e/8d/e8d718a9-5d38-575b-a56a-6a68a6f80fa9/65b959f75e8bd.image.png?resize=750%2C521 750w, https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/e/8d/e8d718a9-5d38-575b-a56a-6a68a6f80fa9/65b959f75e8bd.image.png?resize=990%2C688 990w, https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/e/8d/e8d718a9-5d38-575b-a56a-6a68a6f80fa9/65b959f75e8bd.image.png?resize=1035%2C719 1035w, https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/e/8d/e8d718a9-5d38-575b-a56a-6a68a6f80fa9/65b959f75e8bd.image.png?resize=1080%2C750 1200w)
One measure of restraint shows that total debt service obligations—the percentage of disposable income that households devote to mortgage and consumer credit—are still significantly lower than they were in the mid-2000s, when rapidly falling house prices and job losses led to the Great Recession and a huge number of defaulted loans. Lenders, for their part, also showed restraint by tightening underwriting standards for mortgage loans over the same period.
U.S. consumer debt snapshot
![U.S. consumer debt snapshot](https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/7/ae/7aec01d9-c01d-5b21-bf55-377a2de41276/65b959f7b9049.image.png?resize=150%2C83 150w, https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/7/ae/7aec01d9-c01d-5b21-bf55-377a2de41276/65b959f7b9049.image.png?resize=200%2C110 200w, https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/7/ae/7aec01d9-c01d-5b21-bf55-377a2de41276/65b959f7b9049.image.png?resize=225%2C124 225w, https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/7/ae/7aec01d9-c01d-5b21-bf55-377a2de41276/65b959f7b9049.image.png?resize=300%2C166 300w, https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/7/ae/7aec01d9-c01d-5b21-bf55-377a2de41276/65b959f7b9049.image.png?resize=400%2C221 400w, https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/7/ae/7aec01d9-c01d-5b21-bf55-377a2de41276/65b959f7b9049.image.png?resize=540%2C298 540w, https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/7/ae/7aec01d9-c01d-5b21-bf55-377a2de41276/65b959f7b9049.image.png?resize=640%2C353 640w, https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/7/ae/7aec01d9-c01d-5b21-bf55-377a2de41276/65b959f7b9049.image.png?resize=750%2C414 750w, https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/7/ae/7aec01d9-c01d-5b21-bf55-377a2de41276/65b959f7b9049.image.png?resize=990%2C546 990w, https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/7/ae/7aec01d9-c01d-5b21-bf55-377a2de41276/65b959f7b9049.image.png?resize=1035%2C571 1035w, https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/7/ae/7aec01d9-c01d-5b21-bf55-377a2de41276/65b959f7b9049.image.png?resize=1080%2C596 1200w)
Average loan balances grew for most types of consumer debt in 2023. Credit cards—the debt products with the highest average interest rates for consumers—grew the most. The only category that bucked the trend was student loans, most of which benefited from an interest and repayment pause that ended in late 2023 after three years.
The loans that comprise the bulk of consumer balances—mortgages and student loans—typically have much lower APRs than those of credit cards. In the coming weeks, Experian will publish more detailed reports on each of these types of loans, but to quickly summarize each, here are the changes to average loan and credit card balances in 2023:
- Credit card balances grew 10% to $6,501 in the 12 months from Q3 2022 to Q3 2023, as higher interest rates sharply increased in 2023. Consumers were by and large still able to service those balances, thanks to a tighter labor market leading to both higher employment and higher incomes.
- Personal loan balances grew 6.3% to $19,402 in 2023 as more consumers made the decision to consolidate higher variable-rate debt into lower fixed-rate loans.
- Auto loan balances grew 5.2% in 2023, to $23,792, as more consumers began to climb into more expensive vehicles, while paying more in interest for the privilege.
- Mortgage balances climbed only modestly in 2023, up 3.4% in 2023 to $244,498. Despite average monthly payments for new mortgages skyrocketing, most mortgages currently being repaid are subject to much lower fixed rates than the 6% and higher mortgage rates prevailing for much of 2023.
- Home equity line of credit (HELOC) balances increased modestly in 2023, to $42,139. For years, HELOC balances were in decline, as consumers (and lenders) preferred using cash-out refinances to extract equity from their homes. With mortgage rates significantly higher now, however, cash-out refinances will be a non-starter for most consumers. HELOCs remain an appealing alternative way for consumers to tap their home equity.
- Student loans never went away, but many borrowers saw their payment requirements and interest accrual paused for more than three years. Meanwhile, various loan forgiveness programs have reduced overall student loan debt by more than $120 billion since the pandemic, and some diligent borrowers decided to repay their student loans throughout the payment pause.
Loan interest rates jumped in 2023
![Loan interest rates jumped in 2023](https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/7/cc/7cce99ac-e53e-5515-92c7-44c3436b0002/65b959f81a75a.image.png?resize=150%2C66 150w, https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/7/cc/7cce99ac-e53e-5515-92c7-44c3436b0002/65b959f81a75a.image.png?resize=200%2C88 200w, https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/7/cc/7cce99ac-e53e-5515-92c7-44c3436b0002/65b959f81a75a.image.png?resize=225%2C99 225w, https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/7/cc/7cce99ac-e53e-5515-92c7-44c3436b0002/65b959f81a75a.image.png?resize=300%2C132 300w, https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/7/cc/7cce99ac-e53e-5515-92c7-44c3436b0002/65b959f81a75a.image.png?resize=400%2C176 400w, https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/7/cc/7cce99ac-e53e-5515-92c7-44c3436b0002/65b959f81a75a.image.png?resize=540%2C237 540w, https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/7/cc/7cce99ac-e53e-5515-92c7-44c3436b0002/65b959f81a75a.image.png?resize=640%2C281 640w, https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/7/cc/7cce99ac-e53e-5515-92c7-44c3436b0002/65b959f81a75a.image.png?resize=750%2C329 750w, https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/7/cc/7cce99ac-e53e-5515-92c7-44c3436b0002/65b959f81a75a.image.png?resize=990%2C435 990w, https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/7/cc/7cce99ac-e53e-5515-92c7-44c3436b0002/65b959f81a75a.image.png?resize=1035%2C454 1035w, https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/7/cc/7cce99ac-e53e-5515-92c7-44c3436b0002/65b959f81a75a.image.png?resize=1080%2C474 1200w)
The seeming relentless ratcheting up of interest rates impacted all consumers who needed to borrow. Not only did rising rates significantly increase borrowing costs, they soured many consumers on borrowing to purchase cars and homes. These purchases were rapidly increasing in price even before additional borrowing costs were taken into account.
To see how rising rates are impacting borrowers differently, consider two common types of consumer credit: mortgages and credit cards.
- For fixed-rate mortgage borrowers, the rates they see today don’t affect them directly. They’ll continue to pay what is almost certainly a lower rate on their fixed mortgage, as long as they don’t sell or refinance. And that’s still most mortgage borrowers today: The majority of the $17 trillion in total outstanding consumer debt is owed on fixed-rate mortgages with APRs of 4% or less, compared with the current average mortgage rate of 7.31% available in late 2023. Most mortgages were made in 2021 or earlier.
- But credit card users—at least those who carry balances from month to month—feel current interest rate hikes almost immediately. And that’s with interest rates more than double those of mortgages.
The upshot? Consumers are walking away from one loan market (mortgages) while gravitating toward another with much higher interest rates (credit cards).
As rates climbed, some consumers exited the housing market as they were no longer able to afford a mortgage, while others still waiting on the sidelines further delayed the start of their home search. Consequently, the number of mortgages originated declined in 2023, resulting in the slowest mortgage market since 2008.
Many of these consumers are also now paying an average of 23% APR on revolving accounts, according to Federal Reserve data, with average balances around $6,500 as 2024 begins. That means borrowers carrying an average-size balance month to month would accrue around $112 in interest charges every month.
Despite mortgage rates being much lower than those of variable-rate credit cards, the markets for these loans behaved very differently from one another once rate increases began to take effect. Credit card usage for consumer goods remained strong, while mortgage usage for home purchases lessened. With higher interest rates affecting nearly everyone, the average credit card balance increased 10% in 2023 alongside a 4 percentage point increase in average annual percentage rates (APRs) over the same period.
Average total debt levels up in most states
![Average total debt levels up in most states](https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/e/f4/ef4a4d97-5f78-5b34-be47-3a156e6dcd85/65b959f8646e4.image.png?resize=150%2C141 150w, https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/e/f4/ef4a4d97-5f78-5b34-be47-3a156e6dcd85/65b959f8646e4.image.png?resize=200%2C188 200w, https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/e/f4/ef4a4d97-5f78-5b34-be47-3a156e6dcd85/65b959f8646e4.image.png?resize=225%2C212 225w, https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/e/f4/ef4a4d97-5f78-5b34-be47-3a156e6dcd85/65b959f8646e4.image.png?resize=300%2C282 300w, https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/e/f4/ef4a4d97-5f78-5b34-be47-3a156e6dcd85/65b959f8646e4.image.png?resize=400%2C376 400w, https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/e/f4/ef4a4d97-5f78-5b34-be47-3a156e6dcd85/65b959f8646e4.image.png?resize=540%2C508 540w, https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/e/f4/ef4a4d97-5f78-5b34-be47-3a156e6dcd85/65b959f8646e4.image.png?resize=640%2C602 640w, https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/e/f4/ef4a4d97-5f78-5b34-be47-3a156e6dcd85/65b959f8646e4.image.png?resize=750%2C706 750w, https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/e/f4/ef4a4d97-5f78-5b34-be47-3a156e6dcd85/65b959f8646e4.image.png?resize=990%2C931 990w, https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/e/f4/ef4a4d97-5f78-5b34-be47-3a156e6dcd85/65b959f8646e4.image.png?resize=1035%2C974 1035w, https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/e/f4/ef4a4d97-5f78-5b34-be47-3a156e6dcd85/65b959f8646e4.image.png?resize=1080%2C1016 1200w)
The 2.3% increase in average total debt in 2023 was more modest than was seen in 2022, when inflation was still roiling at 8% annual rates. Now that inflation has cooled, the increase in average total consumer debt has also slowed. Nonetheless, consumers are still enduring higher balances despite the slowing pace of inflation.
States with higher residential real estate prices, including California and Washington in the West and highly urbanized states in the Northeast, typically have larger total debt loads. Mortgages comprise at least 70% of all consumer-owed debt, and the cost of housing in these areas can have a significant impact on total debt levels.
Credit utilization and delinquency rates continue to increase (but slowly)
![Credit utilization and delinquency rates continue to increase (but slowly)](https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/f/e9/fe987b71-9213-571c-a8f0-fc20b6d196c1/65b959f8d7bc5.image.png?resize=150%2C61 150w, https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/f/e9/fe987b71-9213-571c-a8f0-fc20b6d196c1/65b959f8d7bc5.image.png?resize=200%2C82 200w, https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/f/e9/fe987b71-9213-571c-a8f0-fc20b6d196c1/65b959f8d7bc5.image.png?resize=225%2C92 225w, https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/f/e9/fe987b71-9213-571c-a8f0-fc20b6d196c1/65b959f8d7bc5.image.png?resize=300%2C123 300w, https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/f/e9/fe987b71-9213-571c-a8f0-fc20b6d196c1/65b959f8d7bc5.image.png?resize=400%2C163 400w, https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/f/e9/fe987b71-9213-571c-a8f0-fc20b6d196c1/65b959f8d7bc5.image.png?resize=540%2C221 540w, https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/f/e9/fe987b71-9213-571c-a8f0-fc20b6d196c1/65b959f8d7bc5.image.png?resize=640%2C261 640w, https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/f/e9/fe987b71-9213-571c-a8f0-fc20b6d196c1/65b959f8d7bc5.image.png?resize=750%2C306 750w, https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/f/e9/fe987b71-9213-571c-a8f0-fc20b6d196c1/65b959f8d7bc5.image.png?resize=990%2C404 990w, https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/f/e9/fe987b71-9213-571c-a8f0-fc20b6d196c1/65b959f8d7bc5.image.png?resize=1035%2C423 1035w, https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/f/e9/fe987b71-9213-571c-a8f0-fc20b6d196c1/65b959f8d7bc5.image.png?resize=1080%2C441 1200w)
Average credit card debt increased significantly in 2023. At the same time, lenders became pickier about how much credit they’re willing to extend, and which consumers they’ll approve.
There are multiple factors that go into those approval decisions. Often, they’re based on a consensus that considers where the health of the economy is currently, and where it may be headed over the next few months. A robust economy generally means fewer delinquent loans for lenders.
These lender decisions collectively influence the credit utilization rate of consumers, at least by way of determining credit limits. And while consumers overall still have a healthy appetite for credit card spending—balances increased by 10% over the past 12 months—card issuers seemingly aren’t as willing to extend their credit line by an equal 10% in turn. As a consequence, average credit utilization increased from 28% to 30%.
Delinquency rates increased in 2023 as well
![Delinquency rates increased in 2023 as well](https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/1/4f/14f21f92-7c09-5a89-82fa-0e122ade85e9/65b959f937c1f.image.png?resize=150%2C74 150w, https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/1/4f/14f21f92-7c09-5a89-82fa-0e122ade85e9/65b959f937c1f.image.png?resize=200%2C99 200w, https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/1/4f/14f21f92-7c09-5a89-82fa-0e122ade85e9/65b959f937c1f.image.png?resize=225%2C111 225w, https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/1/4f/14f21f92-7c09-5a89-82fa-0e122ade85e9/65b959f937c1f.image.png?resize=300%2C149 300w, https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/1/4f/14f21f92-7c09-5a89-82fa-0e122ade85e9/65b959f937c1f.image.png?resize=400%2C198 400w, https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/1/4f/14f21f92-7c09-5a89-82fa-0e122ade85e9/65b959f937c1f.image.png?resize=540%2C268 540w, https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/1/4f/14f21f92-7c09-5a89-82fa-0e122ade85e9/65b959f937c1f.image.png?resize=640%2C317 640w, https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/1/4f/14f21f92-7c09-5a89-82fa-0e122ade85e9/65b959f937c1f.image.png?resize=750%2C372 750w, https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/1/4f/14f21f92-7c09-5a89-82fa-0e122ade85e9/65b959f937c1f.image.png?resize=990%2C490 990w, https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/1/4f/14f21f92-7c09-5a89-82fa-0e122ade85e9/65b959f937c1f.image.png?resize=1035%2C513 1035w, https://bloximages.newyork1.vip.townnews.com/stltoday.com/content/tncms/assets/v3/editorial/1/4f/14f21f92-7c09-5a89-82fa-0e122ade85e9/65b959f937c1f.image.png?resize=1080%2C535 1200w)
Despite the increases, rates are still well below those observed prior to the pandemic. As of Q3 2023, 2.01% of accounts were 30 to 59 days past due; the number of accounts that were 60 to 89 days past due increased to 1.26%, and 0.81% of accounts were 90 days or more past due.
What borrowers can expect in 2024
Interest rates for consumer loans will decline
The Federal Reserve is expected to begin lowering interest rates sometime in 2024, but no one knows exactly when those decreases will begin. Much will depend on what the Fed sees in economic activity and price increases over the first months of 2024.
A sharp slowing of economic activity and low inflation may mean interest rate cuts will begin sooner rather than later in the year. But any federal funds rate decreases made by the Fed will take some time before reaching consumers in the form of meaningfully lower interest rates for mortgages and auto loans. As for credit card borrowers, a slight reduction in credit card interest rates, even if passed on within one or two months after the Fed lowers rates, will barely be noticed by some consumers when the average APR for credit cards is already above 20%.
Tighter budgets
Average monthly payments are growing, which will impinge future discretionary spending. The most obvious category where this is apparent is automobiles, where the average monthly payment on auto loans has grown from $588 in Q3 2022 to $630 in Q3 2023—a whopping 7.1% increase, according to Experian data.
Meanwhile, student loan borrowers began resuming their repayments in September, which adds an additional monthly payment averaging more than $200 for most borrowers.
Even fixed-rate mortgage borrowers face additional headwinds: Although their monthly payments haven’t increased, for many, higher home insurance premiums can crimp those homeowners’ budgets.
Continued wariness from lenders
Loan officers will continue to be particular about the credit histories of potential borrowers this year. They may limit the amount they’re willing to lend and charge higher interest rates to consumers with lower FICO Scores.
The bottom line
Despite some headwinds, experts anticipate lower interest rates and tamed inflation in 2024. This could benefit borrowers, perhaps more than they may currently believe: As consumer confidence declined in 2023 largely due to unaffordable higher-rate loans, the reversal of at least some of those rate increases in 2024 may improve consumer sentiment in the months ahead.
Methodology: The analysis results provided are based on an Experian-created statistically relevant aggregate sampling of our consumer credit database that may include use of the FICO Score 8 version. Different sampling parameters may generate different findings compared with other similar analysis. Analyzed credit data did not contain personal identification information. Metro areas group counties and cities into specific geographic areas for population censuses and compilations of related statistical data.
This story was produced by Experian and reviewed and distributed by Stacker Media.
Credit: Source link