Trends in U.S. Consumer Loan Delinquency Rates

The Federal Reserve Bank of New York recently released its Household Debt and Credit Report for the third quarter of this year. Today, I would like to walk through several key takeaways from that report.

Compared with the modest increase we saw in the second quarter, total household debt in the third quarter rose by 228 billion dollars, or about 1.3 percent, from the previous quarter. This brought total debt to 17.29 trillion dollars. By category, this consists of 12.14 trillion dollars in mortgages, up 126 billion dollars from the prior quarter; 349 billion dollars in home equity lines of credit, up 9 billion dollars; 1 trillion dollars in credit card balances, which jumped by 47.8 billion dollars, or 4.7 percent; 1.6 trillion dollars in auto loans, up 13 billion dollars; and 1.6 trillion dollars in student loans, up 30 billion dollars.

Mortgage originations in the third quarter totaled 386 billion dollars, a slight decline from the second quarter and far below the trillion‑dollar levels seen in 2020 and 2021. New auto loans came to 179.3 billion dollars, a modest increase. Overall, new lending is assessed as being extended to relatively high‑quality borrowers: only 4 percent of new mortgages and 16 percent of new auto loans went to borrowers with credit scores below 620, and the median credit scores for these new loans were 770 and 719, respectively, indicating very strong credit profiles.

The aspect the New York Fed chose to highlight in this report was delinquency. Roughly 3 percent of total household debt is now at least 30 days past due. While this is still below the level seen in 2019, before the pandemic, the fact that delinquencies have been rising for several consecutive quarters makes it a source of concern. Excluding student loans, which have been affected by forgiveness programs and temporary forbearance, delinquency rates have increased across all other categories. In 2021, extensive federal support and extensions of repayment and grace periods pushed delinquencies to historic lows. Now that the pandemic is behind us, the Fed had anticipated some increase in delinquencies, but it likely did not expect the rise to be this steep.

What especially drew the Fed’s attention was the sharp increase in delinquencies on credit cards and auto loans. Auto loan delinquencies, to some extent, have begun to stabilize, with the rate rising only 0.1 percentage point from the previous quarter to 7.4 percent. By contrast, the share of credit card balances becoming delinquent climbed 0.8 percentage point to 8 percent, the fastest increase among all major categories of household debt.

By age cohort, delinquency rates among Millennial credit card holders—those born between 1980 and 1994, now in their thirties and early forties—are the furthest above their 2019, pre‑pandemic levels. Generation Z borrowers, born between 1995 and 2011, also show relatively high delinquency rates, but these are roughly in line with their pre‑COVID averages. This suggests that the recent run‑up in credit card delinquencies is being driven primarily by borrowers in their thirties.

The data also show that cardholders with high revolving balances have higher delinquency rates. However, since this group accounts for only about 6 percent of all credit card users, the overall impact is limited. Moreover, given that larger balances naturally come with a higher probability of delinquency, this pattern does not appear to point to any special or additional underlying cause.

Lastly, when we look at credit card borrowers who are delinquent and also hold other types of debt, the pattern is intuitive: borrowers who carry multiple types of loans are more likely to struggle with all of them. In particular, delinquency rates are highest among borrowers who hold credit card, student loan, and auto debt simultaneously.

However, given that overall economic conditions did not materially deteriorate in the third quarter and the labor market did not undergo any major shift, it is still difficult to pinpoint a clear, single driver that fully explains this rise in credit card delinquencies.