Americans Have Never Been So Far Behind on Their Credit Card Bills
A new report from the Federal Reserve Bank of Philadelphia provides a glimpse into how Americans are dealing with credit card debt — and the picture is pretty bleak.
The phrase “series high” appears again and again throughout the short analysis, underscoring the fact that credit card balances, delinquencies and utilization rates have reached the highest levels since the Philadelphia Fed began tracking this data in 2012.
“Credit card performance worsened to historical levels,” the report states, noting that the share of folks who fell behind at least 30 days on their credit card payments reached an all-time high between October and December 2023.
Overall, about 3.5% of card balances were past due 30 days or more. The share of people who were further behind on their credit card bills also climbed by the end of the year. Meanwhile, nearly 11% of cardholders were making only the minimum payment possible: another record high.
The researchers note that seasonal factors are at play. Toward the end of the year, which is the period measured by this report, credit card balances tend to spike and borrowers miss payments more than usual due to the holiday season (but the end of 2023 was particularly rough).
On the bright side, credit card balances when adjusting for inflation were slightly below pandemic levels.
Why people are struggling with credit card debt now
The Philadelphia Fed’s report is not an outlier. Several recent analyses have come to similar conclusions, finding that Americans are increasingly falling behind on their debts. The trend may even be accelerating in 2024.
While the Philadelphia Fed’s report looks at the last few months of 2023, data through February from the credit-scoring firm VantageScore shows that Americans are also struggling to make timely payments on auto loans, mortgages and personal loans.
For many folks, their credit scores are tanking because of it. A Money analysis of VantageScore data found that, over the past year, more than 1.2 million Americans became “subprime borrowers.” In other words, they fell into the lowest credit score category possible, with scores of 600 or below.
When people have a subprime credit score, it becomes exceedingly difficult to participate in the U.S. financial system and modern daily life as a whole. For example, subprime borrowers are often charged exorbitant annual percentage rates. Beyond loans, internet and phone plans, security deposits and even rent payments can increase in cost as a result of a low credit score. Employers are increasingly considering credit history in their hiring decisions, as well.
At the same time, VantageScore data shows that some Americans are doing better than ever and have joined the group of “superprime borrowers" with credit scores above 780. The chasm forming between them represents what one VantageScore executive called a “tale of two consumers.”
The dichotomy is evident in the Philadelphia Fed’s report, too. On one hand, a growing share of Americans are racking up record-levels of debt on their credit cards and can only manage to pay the bare minimum each month — if at all. On the other hand, about 1 in 3 credit cardholders are able to pay off their monthly balance in full.
What’s fueling the trend? Experts from both VantageScore and FICO, another credit scoring firm, say that high interest rates and lingering inflation are likely culprits.
While inflation is indeed moderating, prices on everyday goods and necessities are still far pricier than they were before the pandemic. To rein in soaring prices, the Federal Reserve hiked benchmark interest rates 11 times since March 2022. Many of those prices remain stubbornly high, however, meaning interest rates are likely to stay elevated for the moment, as well.
This puts everyday consumers in a sort of financial Catch-22: Almost everything is more expensive. So they have to rely more heavily on credit cards or other financing to make ends meet. But because of elevated interest rates, the cost of borrowing is through the roof, too.
That begs the question: Just how many more all-time highs can Americans stomach?
More from Money:
An Opaque Web of Credit Reports Is Tracking Everything You Do
From Netflix to Rent, You Can Use Everyday Bills to Boost Your Credit Score — but There's a Catch