Amid increasing household debt, a significant rise in credit card delinquencies among high-usage borrowers signals potential financial stress ahead, according to recent findings from the New York Fed.
06/03/2024 2:35 P.M.
2 minute read
The New York Fed’s Center for Microeconomic Data recently released its Quarterly Report on Household Debt and Credit for the first quarter of 2024, which revealed a notable increase in household debt and a rising trend in credit card delinquencies.
Here are the key findings of the report:
- Household debt saw a $184 billion increase over the previous quarter, driven primarily by housing debt, which alone grew by $206 billion. Auto loans also experienced a $9 billion uptick, continuing a steady growth pattern that began in mid-2020.
- Conversely, non-housing debts saw a slight decline, with credit card balances falling by $14 billion—a typical trend for the first quarter of the year. However, despite the seasonal drop in balances, credit card delinquency rates are climbing, particularly among those with high utilization rates.
- The nationwide aggregate credit card utilization rate—indicating the percentage of total available credit being used—remained stable at about 23%. However, individual utilization rates vary significantly.
- In the first quarter of 2024, 52% of borrowers used less than 20% of their available credit, while 18% of borrowers, labeled as “maxed-out,” used at least 90%. This latter group is at a higher risk of falling behind on payments.
- Borrowers who became newly delinquent in the first quarter of 2024 had a median utilization rate of 90% in the previous quarter, compared to a median rate of 13% for those who remained current on their payments.
- In the first quarter of 2024, the median credit limit for maxed-out borrowers was $5,000, significantly lower than the median limits of $10,050 and $21,000 for borrowers with 60-90% and 0-20% utilization rates, respectively.
- Borrowers from higher-income areas generally have lower utilization rates, thanks to higher median credit limits. For example, the highest-income quartile boasts a median credit limit of $25,800, compared to just $11,300 for the lowest-income quartile.
- Generation Z borrowers, despite having the highest rate of maxed-out credit cards (15.3%), also have the lowest median limits at $4,500. This is largely due to their shorter credit histories and lower incomes, which affect their credit scores and borrowing capacity.
“For a positive improvement in credit card delinquency, we would need to see the delinquency transition rate among maxed-out borrowers begin to decline and/or the share of maxed-out borrowers to fall. So far, the data show neither of these trends moving in the right direction. If these trends continue and other factors influencing delinquencies remain the same, credit card delinquencies are likely to continue to rise,” according to the report.
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