What’s new about delinquency on credit cards and other loans?

Credit card late rates have declined for the third consecutive quarter after earning the highest points in over a decade. According to the Federal Reserve3.05% of credit card balances was arrears (due to 30 days or more) as of the first quarter of 2025. The recent peak was 3.24% in the second quarter of 2024, a high since the fourth quarter of 2011.

Charge-offs are very slow to pay, so lenders essentially give in to collect the money (for credit cards, the typical threshold is 180 days ago, but sometimes it occurs earlier, such as after 90 days).

The charge-off rate follows a similar pattern as late as late 2011 (4.69%), reaching its highest point late last year since late 2011 (4.69%), and then a bit since (4.44% on the last check). Serious delinquency often turns into charging. This is because it is increasingly unlikely that someone who is 120 days behind in 90 days will be able to get back on track soon. Traditional wisdom is that credit card charging rates are more or less consistent with unemployment.

Card issuers did not appear to be particularly concerned about the late arrears and the substantial gradual stages of charge-offs that have occurred in recent years. They have generally seen this transition as “normalisation” after an extraordinary low during the pandemic.

https://www.youtube.com/watch?v=wtexk2Sotq8

Have questions about credit cards? Email me to ted.rossman@bankrate.com. He will be happy to help you.

How the Covid-19 pandemic has affected credit card delinquency and defaults

It was reduced to 1.63% in the fourth quarter of 2021, the lowest in the Federal Reserve dataset dating back to 1985. The credit card delinquency rate reached Nadir (1.53%) before that. The dominant theory is that Americans use Covid-era economic stimulus payments to pay off their debts, and many more people spent less during the pandemic (as travel and large gatherings were reduced along with many other temptations).

Optimism continued

The mood within the credit card industry has generally been pretty bright over the past few years, but not everything is rosy. While spending and profits have risen, card issuers have also strengthened their lending standards and are back to juicy sign-up bonuses.

Credit card origination fell 4.3% from 82.1 million (recorded high) in 2022, from 78.6 million new accounts in 2023. The decline occurred when 71 million new accounts were opened between 2023 and 2024 (9.7% year-on-year). It was still every other year before 2019 (69.4 million accounts) and the pandemic. This year has started with similar footholds, with originations in January and February down from last year, but still ahead of pre-pandemic levels.

American Express, which caters to a wealthier and more trustworthy customer base than many of its rivals, shared this positive view in its latest revenue call in April.

Synchronous finance is often played on the other side of the sandbox. Store credit cards are a big part of that business and these tend to be easy to obtain. Store card providers (including sync) are generally not selective about credit quality. They compensate by charging higher interest rates. Synchrony’s delinquency rate is significantly higher than Amex, but it still piles up favorably in pre-pandemic times. “We’re looking forward to seeing you in a revenue call,” said Brian Wenzel, Chief Financial Officer of Synchrony, in an earnings call in April.

Wentzel added that the charge-off remains a bit of a problem (though lower delinquency rates are likely to predict an improvement in this metric):

“Our net charging rate was 6.38% in the first quarter, up 7 basis points from 6.31% in the previous year, 54 basis points above the historic average for the first quarter of 2017-2019.”

Meanwhile, in the middle market segment, Bank of America is a good agent. Banks are also relatively bright, as evidenced by calling comments by CFO Alastair Borthwick:

Credit card issuers generally feel that the current situation is pretty good, but of course there is a lot of economic uncertainty, so we can summarise these perspectives. Crystal Ball is rather cloudy when it comes to predicting the impact of tariffs and recession concerns on job markets, consumer spending, lateness, and (ultimately) defaults.

This is why they don’t stick their heads too far, even when the banks are relatively calm. have It’s difficult for some Americans to access creditsespecially those with low credit scores and low incomes. And the arms race to attract large, highly trustworthy customers has not been so robust in recent years.

Delinquency for students and car loans is the biggest trouble spot

I’m far more concerned about student and car loan delinquency than late payments with credit cards. Transunion says A record 20.5% of federal student loan borrowers with due payments were 90 days behind as of February. Federal Government Student loan Payments were suspended from early 2020 to late 2023 to late 2024, with a one-year penalty free-on ramp from late 2024. That long rug explains why he just saw the tip of the iceberg. Around July 1st, the default spikes began to appear (approximately 270 days after the lamp expired).

Meanwhile, the delinquency rate for car loans is at its highest level since the financial crisis more than 15 years ago. According to Morning Star. Rapid preparation of vehicle prices, Auto loan fees and Auto insurance costs It was a troublesome combination.

Conclusion

It is an unsecured debt and is therefore generally considered more risky than assets-backed debts such as households and automobiles, but the credit card market has maintained quite well, but there is much to monitor in the coming months.

All of these have potential ripple effects as well. For example, if you don’t have the money to pay a student or car loan, you may not be able to pay other bills. Or you may rely on a credit card Emergency Fund It builds up some kind of debt that may be difficult to pay back later. All of this contributes to an increase in levels of economic uncertainty and helps to explain why issuers bring their cards a little closer to their vest, open new accounts, trim sign-up bonuses, and pay attention to economic storm clouds.