Despite the wailing about tapped-out, struggling and cracking consumers, the credit card delinquency rate dropped to multi-year low.
By Wolf Richter for WOLF STREET.
The 30-day-plus delinquency rate on credit cards issued by all commercial banks declined to 2.94% at the end of Q4, seasonally adjusted (SA, red in the chart), the lowest since, and the same as, Q3 2023, and down from 3.08% a year ago, and from 3.10% two years ago, according to the Federal Reserve Tuesday afternoon, based on regulatory reports filed by all commercial banks. This includes credit cards by subprime-rated cardholders.
Not seasonally adjusted (NSA, blue in the chart), the 30-day delinquency rate, at 3.03%, was the lowest for any Q4 since Q4 2022.
During the Free-Money era, credit card delinquency rates had dropped to very low levels. But after the Free-Money fizzled, delinquency rates rose out of the trough, overshot a little, and then in 2024 started heading lower again. Throughout, delinquency rates remained relatively low compared to the 25-year context of the data.
Credit card balances: a measure of spending, not of borrowing.
Credit card balances are statement balances before payments are made. They’re a measure of spending, not a measure of borrowing. Most of these charges get paid off every month by due date and never accrue interest.
Credit cards have become the dominant consumer payments method in the US, largely replacing checks and cash. Debit cards are the second most popular payment method. That’s why watchers of the economy keep an eye on credit card balances: They indicate growth of consumer spending.
Credit card balances (red line in the chart below) rose by $69 billion year-over-year at the end of Q4, or by 5.7%, to $1.28 trillion, on growth in consumer spending and price increases (data from the New York Fed’s Household Debt and Credit report based on Equifax data).
This data is not seasonally adjusted. Typically, spending spikes during the holiday period and then drops in Q1. The data confirms that spending growth was solid.
“Other” consumer loans (blue line) – such as personal loans, Buy-Now-Pay-Later (BNPL) loans, and payday loans – inched up 1.1% year-over-year, far less than the rate of inflation, to $560 billion. Many of these balances, except current BNPL balances, accrue interest.
These other consumer loans have barely risen over the past 22 years, despite the growth of the population, income, inflation, and spending.
The declining and relatively low delinquency rates and the rising statement balances are not hard to explain.
Consumers are earning record amounts of income, and there is a record number of consumers, and they’re buying record amounts of goods and services via electronic means, dominated by credit cards.
Consumers’ aggregate balance sheet is in good shape: 65% own their own homes, and about 40% of these homeowners don’t have a mortgage, and others have whittled down their mortgages. Over 60% of households have at least some stocks. Many hold precious metals and cryptos. Many are sitting on a record pile of interest-earning cash.
The burden of credit card balances.
Credit card balances (red in the chart above) and “other” consumer debt (blue above) combined, rose year-over-year by $75 billion, or by 4.2%, to $1.84 trillion.
The debt-to-income ratio is one of the classic ways of evaluating the burden of a debt. With households, we can use the debt-to-disposable-income ratio.
Disposable income, released by the Bureau of Economic Analysis, is essentially the monthly after-tax income consumers have available to spend on a monthly basis for their daily costs of living, and to service their debts, and then to save and invest the rest. It’s income from after-tax wages, plus income from interest, dividends, rentals, farm income, small business income, transfer payments from the government, etc.
It excludes income from capital gains, which is where the super-wealthy make most of their money. So this upper echelon of income is excluded here.
The ratio of credit card and other consumer loan balances to disposable income in Q4, at 8.0%, was where it had been in Q4 2024 and in Q4 2023 and below the Q4s in the years before the pandemic. And it has come way down from the years before the Financial Crisis.
Available Credit rises to record.
Credit cards are very profitable for banks because of the swipe fees they earn on every purchase. So banks are trying aggressively to get people to set up new credit card accounts, and they incentivize people to use those cards by kicking back 1% or 2% or more in form of cash back, loyalty points, miles, etc., on the logic, “The more you spend, the more you make,” meaning, “The more you spend, the more we make.”
So the aggregate credit limit (blue in the chart below) rose to a record $5.4 trillion, outgrowing balances (red).
And the available unused credit has soared to a record $4.15 trillion (gray arrow).
Third-party collections hit record low.
This is where defaulted credit card accounts end up if the cardholders fail to catch up with their payments or make some kind of deal with their bank.
In terms of credit reporting, a third-party collection entry is made into a consumer’s credit history when the lender reports to the credit bureaus, such as Equifax, that it sold the delinquent credit card debt to a collection agency for cents on the dollar.
The percentage of consumers with third-party collection entries on their credit reports again hit the rock-bottom of 4.6% in Q4.
This rounds off my four-part quarterly analysis of consumer debt and credit. And in case you missed them:
Serious Delinquency Rates for Subprime & Prime Auto Loans, Balances, and Debt-to-Income Ratio in Q4 2025
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Who do you believe? Wolf Street or the MSM? Wolf digs deeper.
Great four-part analysis – thanks!