U.S. households increased their credit card balances substantially in the third quarter, with inflation forcing some consumers to borrow to cover extra expenses.
Credit card balances rose more than $38 billion, or 15%, from a year ago, the largest increase in more than 20 years, according to a new report from the Federal Reserve Bank of New York.
The year-over-year increase is "substantial," New York Fed researchers said on a call with reporters Tuesday.
The upswing in consumer borrowing marks the third straight quarter of notable increases in credit card balances. It comes just before the fourth quarter, when balances typically see their biggest jump thanks to holiday spending. At the same time, delinquency levels are also on the rise, a sign that more consumers are struggling to pay off their higher balances.
The trajectory of card balances moving forward depends on the pace of income gains in relation to inflation, researchers said. Income increases have so far failed to keep up with rapid price increases.
Credit card balances have been climbing steadily in 2022. In the second quarter,
Younger consumers and those with lower incomes added the most to their card balances between July and September, the New York Fed said. Borrowers under 30 reached $70 billion in balances during the third quarter, above the group's pre-pandemic total. For borrowers between the ages of 30 and 59, balances have increased in recent quarters and are approaching where they were in the fourth quarter of 2019. The card balances of those between the ages of 60 and 79 have yet to reach pre-pandemic levels.
Residents of ZIP codes with average incomes among the bottom 25% increased their balances to about $2,408 in the third quarter, above the average of $2,319 in the fourth quarter of 2019. Borrowers in the highest-income ZIP codes have fared better, reducing their average balances by $300 between the end of 2019 and the third quarter of 2022.
More households are struggling to pay down their debts, according to the New York Fed report. The share of consumers at least 30 days late on their payments rose across all income groups in the third quarter, with the most pronounced increase among lower-income borrowers. Still, delinquency rates for all income groups remain below pre-pandemic levels.
Results from major credit card companies released this week show that levels of delinquent and charged-off loans are on the rise.
At Synchrony Financial, loans at least 30 days past-due increased to 3.4% last month, up from 2.9% six months ago and 2.2% a year ago. Capital One Financial's delinquency rate rose to 3.17%, which is still below the 3.79% it recorded in October 2019.
Capital One and Synchrony said net charge-offs increased by 70 and 40 basis points, respectively, in October from the prior month.
Overall, U.S. household debt rose by $351 billion to $16.51 trillion in the third quarter. Auto loans rose by $22 billion, mortgage balances increased by $282 billion and student loan balances declined by $15 billion.
