In September, there was a significant increase in newly-delinquent debts, contributing to the overall rise in unpaid bills among Americans. VantageScore researchers have observed a continuous climb in delinquencies, reaching a new 12-month high last month.
Surge in Freshly Past-Due Debt
One notable aspect of this trend is the sharp rise in debt that is less than two months late. According to researchers, early-stage delinquencies rose from 0.84% in August to 0.91% of outstanding balances in September. This represents the second-highest monthly increase within the past year, with an uptick of 0.07 percentage points.
Previous Figures and Comparisons
To put things into perspective, at the beginning of 2023, only 0.70% of outstanding balances were past due for under two months, as indicated in the research.
Breakdown of Delinquencies by Type
In September, early-stage delinquencies increased for credit cards and mortgages while decreasing for car loans and personal loans. This data reveals the varying impact of financial challenges such as inflation and higher interest rates on different types of debt.
Credit Health and Score Stability
Despite the rise in delinquencies, there are positive signs indicating that many Americans are still managing their credit health effectively. The average credit score among consumers remained at 701 for the third consecutive month, which is considered a “prime” score on the scale of 300 to 850. Additionally, credit-utilization rates slightly improved in September.
The Role of VantageScore
VantageScore, a credit-scoring company owned by Equifax, Experian, and TransUnion, provides these insightful statistics. The findings shed light on the financial landscape and the challenges faced by individuals in navigating their outstanding debts.
It is essential to note that these delinquencies come at a particularly inconvenient time, given the approaching holiday shopping season. Susan Fahy, the Executive Vice President and Chief Digital Officer at VantageScore, highlights the importance of staying on top of bill payments to avoid falling further behind.
Delinquency Trend on the Rise: How It Impacts Consumers during the Holiday Shopping Season
As the holiday shopping season approaches, the increasing trend of delinquencies raises concerns for consumers. Financial experts warn that accumulating more debt without the ability to pay it off on time could have serious consequences. Even though holiday retailers may entice consumers with discounts for opening new credit accounts, it’s crucial to be cautious about taking on additional credit.
Store-issued credit cards, in particular, can be quite costly for those who cannot afford to pay off their balance. According to Bankrate, some of these store cards now come with interest rates exceeding 30%.
While the outlook for the holiday shopping season is a mix of cheer and gloom, it’s important to consider the broader context when analyzing debt trends. Delinquency numbers may be on the rise, but it’s essential to remember that they took a significant downturn during the pandemic. Factors such as extra cash, lower inflation, and lower interest rates helped many people clear their debts.
The VantageScore report reveals that the amount of past-due mortgage debt remains below January 2020 levels, indicating a positive trend. However, for credit cards, delinquencies up to two months, between two and three months, and delinquencies of at least three months old have surpassed their January 2020 levels.
Further analysis of the delinquency trend provides insight into the consumer profiles most affected. It appears that consumers with subprime credit scores ranging from 300 to 600 and near-prime scores from 601 to 660 are primarily driving the increase in delinquencies. This “tale of two consumers” showcases a stark contrast between those struggling in this economy and those thriving.
Interestingly, individuals with top-tier credit scores ranging from 781 to 850 have shown fewer instances of falling behind on debt when compared to last September. However, even those with prime scores, ranging from 661 to 781, are not entirely immune to delinquency trends. Early-stage delinquencies among this group have risen slightly from 0.14% to 0.15% over the past year, as revealed by VantageScore numbers.
Financial institutions have responded to the increasing delinquencies by tightening their credit requirements. However, they continue to lend to creditworthy consumers. It will be crucial to closely monitor balance and delinquency trends to assess any significant increases, warns Fahy.
As the holiday season approaches, individuals should prioritize responsible financial management and avoid accumulating excessive debt. By being proactive and mindful about their spending and repayment abilities, consumers can navigate the holiday shopping season without falling into the trap of unmanageable debt.