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U.S. consumers’ credit health remained relatively strong late last year, according to VantageScore, but there are signs that it’s getting increasingly harder to manage debt obligations, amid inflation pressures and high borrowing costs.
VantageScore found that many of its lower tier credit consumers were financially stretched at the end of 2023, with millions relying on personal loans or asking lenders for higher credit card limits to cover expenses and holiday spending. That, in turn, raises the concern that some may face further pressure to make their monthly payments in subsequent months.
In November, delinquencies remained elevated Y/Y across all loan categories, with the Days Past Due (DPD) rising by category to .90% from .68% (30-59 DPD), to .33% from .23% (60-89 DPD), and to .15% from .10% (90-119 DPD). The only exception to the annual increase in late payments was seen in the VantageScore Superprime segment, which was within the 60-89 DPD category.
“There is a growing concern that some consumers’ holiday spending is adding unsustainable levels of credit card and personal loan debt,” said Susan Fahy, executive vice president and chief digital officer at VantageScore.
The report also showed that early-stage personal loan delinquencies jumped to .99% from .87% a month ago, marking the second time in 2023 that delinquencies in this category exceeded pre-pandemic levels.
What’s more, credit card balances gained 9% from November 2022. “Consumers appeared to exhibit confidence during the holiday shopping season, and with credit card interest rates at historic highs, (amid the Federal Reserve’s tightening cycle), the impact on balances is evident,” VantageScore said in its November CreditGauge report.
The normalization in consumer credit comes as student loan payments resumed, and thus, putting an end to one of the last vestiges of pandemic-era fiscal relief for consumers. When major credit card issuers ((COF), (AXP), (JPM), (SYF), (DFS), (BFH), (BAC)) reported their November metrics, it showed that both delinquency and net charge-off rates marched higher, on average. Some company’s, like Capital One Financial, saw weaker credit quality than before the pandemic.
Lenders in general will have to keep a close eye on consumers’ spending trends as still-stubborn inflation continues to pressure buying patterns. Even when the Fed starts to lower rates, which is expected to occur at some point in 2024, there is little incentive for credit card businesses to lower rates if consumers are spending on credit cards consistently. That, of course, leaves consumers with the tough task of paying down their balances.
SA’s Quant system gave Capital One (COF) the highest rating among consumer finance stocks, followed by PROG Holdings (PRG), Synchrony Financial (SYF), MoneyLion (ML) and OppFi (OPFI).