US consumers accumulated a record-setting $21.9 billion in credit card debt in the third quarter of 2016, the largest third quarter debt increase since 2007, according to the latest Credit Card Debt Study: Trends & Insights from WalletHub. What is even more concerning is that TransUnion’s 2017 Consumer Credit Market Forecast indicates that delinquency rates for credit cards and auto loans are expected to increase in 2017.
Although delinquency rates are still relatively low compared to the recession years, it is something to watch closely. An increase in subprime lending in Q3 2016 (volume grew by 14.7%) brings with it risks as well as rewards; an increase in card delinquency is a natural result of more subprime consumers entering the market.
Another factor poised to impact delinquency rates is the fact that credit card interest rates may rise as a result of prime rate increases. For consumers carrying a balance on their cards, monthly payment amounts will increase because of the higher interest rates, upsetting what could be a delicate balance in their budgets.
Serious delinquency rates for credit cards and auto loans have also been increasing since fourth quarter 2014. TransUnion defines serious delinquency as 60 or more days past due for auto loans and 90 or more days past due for credit cards.
According to Nidhi Verma, senior director of research and consulting in TransUnion’s financial services business unit, “These projected increases in delinquency are not surprising, nor are they yet a cause for concern. Lenders are adjusting their underwriting strategies to maintain a good balance between expected losses, consumer credit access, customer utility and investor returns—and in the end, that balance is a benefit to all parties.”
We here at Credit Consulting Services will be keeping a close eye on these trends.