Americans are behind on their bills — just in time for holiday shopping season

Americans’ past-due bills are stacking up, and their newly-delinquent debts saw a marked increase in September.

The rise in freshly past-due debt is one notable part of a continuing overall climb in the share of debts that people have failed to pay on time, according to VantageScore researchers, who said delinquencies of all lengths notched a new 12-month high last month.

The sharpest rise was a climb in debt that was under two months past due, researchers said.

Early-stage delinquencies — those that are under two months late — climbed to 0.91% of outstanding balances in September, up from 0.84% in August. In a 12-month window marked with slight ups and downs each month, September’s 0.07 percentage-point rise is the second highest monthly jump.

2023 started with 0.70% of outstanding balances past due for under two months, the research showed.

In September, early stage delinquencies increased for credit cards and mortgages while decreasing for car loans and personal loans.

VantageScore’s numbers reflect the financial challenges of inflation and higher interest rates — but they also show many Americans are still holding up despite it all.

Consumers’ average credit score remained at 701 for the third straight month, VantageScore researchers said, which is considered a “prime” score on a scale of 300 and 850. Meanwhile, credit-utilization rates eased slightly in September, showing most people “managing their credit health,” the report said.

The credit-scoring company VantageScore is owned by the three major credit reporting companies, Equifax
EFX,
+3.42%
,
Experian
EXPGY,
+2.13%

and TransUnion
TRU,
+1.62%
.

There’s never a good time to fall behind on your bills, but the increase in delinquencies is occurring with the holiday shopping season right around the corner, said Susan Fahy, executive vice president and chief digital officer at VantageScore.

“If this trend continues, we expect to see the later-stage delinquencies rise as well,” Fahy said. “With the holiday shopping season approaching, consumers should ensure that they are not accumulating more debt if they cannot pay it on time. This includes avoiding taking out new credit even if holiday retailers are offering discounts in exchange for opening a new account.”

This holiday season, store-issued credit cards may be especially costly for people who cannot afford to pay the balance. The interest rates on some of these store cards are now over 30%, according to Bankrate.

A month before Black Friday, there’s a mix of cheer and gloom about what the holiday shopping season will look like.

Of course, it’s important to take a step back when measuring trends on debt. Delinquency numbers may be going in the wrong direction, but that’s after they took a dive during the pandemic when extra cash, lower inflation and lower interest rates helped many people clear out debts.

As a share of outstanding balances, the amount of past-due mortgage debt remains below January 2020 levels, before the pandemic’s start, the VantageScore report showed.

For credit cards, delinquencies up to two months, between two and three months and delinquencies at least three months old are above their January 2020 levels.

The consumers who are driving the delinquency trend have subprime credit scores of 300 – 600 and near-prime scores from 601 to 660, Fahy noted.

That’s more evidence that a “tale of two consumers” is playing out, as some struggle in this economy while others thrive.

Compared to last September, people with tip-top credit scores of 781 to 850 have less debt that they’re falling behind on.

But people with prime scores — between 661 and 781 — aren’t immune to delinquency trends, VantageScore numbers show. Their early-stage delinquencies are up to 0.15% from 0.14% a year ago.

“Lenders have increased their credit requirements but are still lending to creditworthy consumers. This is an area to watch if balances and delinquencies see a significant increase,” Fahy said.

Source link