Delinquent credit card accounts, those which are at least 90 days behind, have traditionally seen the highest rates of serious past due accounts in the last 20 years. The rate of accounts at least 90 days behind ballooned to 13.7% at the start of 2010, but have gradually come down since then, with only minor spikes (usually coinciding with the start of the year) and a small spike during the early days of COVID.
Early in 2023, serious credit card delinquencies were holding steady at about 8.2% for the start of the year, dipping slightly to 8% for the second quarter. Things have changed since then as the first quarter of 2024 saw a monumental spike in past due accounts. The first quarter numbers shows that 10.7% of all credit card accounts at past due more than 90 days. The last time the percentage was that high was in May 2012.
It’s not surprising to see credit card accounts have more delinquencies than other accounts as they usually have interest rates in the double digits, even for those with good credit. The only other type of debt which surpassed the percentage of those seriously behind on their payments was student loan debt for a few years between 2012 and 2018. Both credit cards and student loans are the only two types of debt, tracked by the Fed, which are unsecured. When times get tough, it’s almost always the unsecured debt which moves to the back of the priority line when there isn’t enough money to go around.
Why are Credit Card Delinquencies Jumping So Quickly?
The important question to ask here is what is causing such a harsh uptick in overdue accounts. It’s most likely a two-headed beast in the form of higher interest rates and expanding inflation.
Higher Fed interest rates are always going to lead to higher credit card interest rates. At a certain point, credit card companies start hitting state-regulated maximum interest rates, even for consumers who typically wouldn’t be considered to have poor credit. While the interest rates aren’t like they were in the 1980s, they are relatively high compared to what they have been the last several years. Inflation has taken off significantly, likely due to a combination of corporations pushing the limits in what they can charge, along with a low interest rate environment. These higher prices lead to more purchases being put on credit cards, resulting in higher balances, often at a higher interest rate.
It remains to be seen what the 2024 second quarter numbers are going to look like. History tells us Q2 numbers are usually lower, though not by much. When they don’t come in lower in the second quarter, that’s when alarm bells should be going off that there could be a serious issue on the horizon. It’s happened before with the Great Recession and COVID, if it continues to rise, the economy could be in for a rude awakening.