More Americans Defaulting on Credit Cards, Fed Reports

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A recent report shows that credit card delinquencies are increasing as American households rack up debt.

A growing number of Americans are defaulting on their credit card loans, which is alarming in a low interest rate environment and improving economy. The latest Quarterly Report on Household Debt and Credit, published by the Federal Reserve Bank of New York, reveals the notable trend.

According to the Fed’s report, credit card delinquencies have been on the rise in the past year. The report finds that despite having dropped to yearly lows after the Great Recession, credit card defaults are once again picking up pace.

The report finds that credit card balances that resulted in delinquencies have increased for the past three consecutive quarters. This trend has not been witnessed since 2009, when America was dealing with the Great Recession.


The trend raises concerns since interest rates are low, the labor market appears strong, and the economy is doing relatively well.

The jump in delinquencies is particularly obvious in the category of non-prime borrowers. Borrowers that fall in the lowest two bands of credit scores are reporting the highest delinquencies. Borrowers with scores under 620 have shown the highest jump in delinquencies, followed by those in the credit score range between 620 and 659.

The report suggests that the rise in delinquencies may have to do with a relaxation in lending criteria at the lenders’ end. The decline in delinquencies seen after the Great Recession, particularly during 2013-2015, was due to stringent borrowing standards.

However, in the past year, credit card issuances to both prime and non-prime borrowers have been increasing. According to the Fed, credit card debt increased 2.6% in the second quarter of 2017.

Overall, household borrowing by American consumers has jumped by 0.9%, from $114.0 billion to $12.84 trillion, during the second quarter of 2017. Apart from credit cards, other loan instruments also saw an increase; mortgage borrowing by American households increased by 0.7%, while auto loans jumped two percent.

The rise in delinquencies is certainly concerning. The Fed will be keenly observing the next move in the trend in the coming quarter.



Just Released: More Credit Cards, Higher Limits, and . . . an Uptick in Delinquency,” Federal Reserve Bank of New York, August 15, 2017.


Categories: Economic Decline, News