Credit card delinquencies declined at faster pace in February

As stocks tumble and inflation remains stubborn, one economic indicator is heading in the right direction: credit card delinquencies.

In February, 30-day delinquencies were at an average of 4.33%, down from 4.39% in January, according to data released on Monday by Capital One, Discovery and Synchrony. 

On a year-over-year basis, this trend is not only holding but accelerating. In November, delinquencies were still rising 11 basis points from the same month in 2023. Then they declined in December by 4 basis points, followed by 17 basis points in January and 24 basis points  in February.

Brian Foran, an analyst at Truist Securities, highlighted this shift in a note on Monday. 

“Some would say it is outdated data, but at the very least the fact that delinquencies have improved four months in a row now shows nothing changed during the month of February, and the consumer did not fall off a cliff,” Foran said in an email to American Banker.

The latest delinquency data comes at a precarious time for the U.S. economy. Major stock indexes, including the S&P 500, have fallen into a correction in recent weeks. Inflation has remained stubborn, with the consumer price index hovering around 3%. And fears about the Trump administration’s tariffs and slashing of the federal workforce have driven consumer sentiment to its lowest point in three years.

Amid that gloomy backdrop, delinquency data offers a rare point of light — but in some ways it’s not surprising. Delinquency rates plunged during the COVID-19 pandemic, when lockdowns reduced spending and government-issued stimulus checks shored up Americans’ finances. When those policies expired, delinquencies shot up again.

So the latest drop is seen by some experts as a return to normal.

“This is actually in keeping with banks’ hypothesis all along,” said Ted Rossman, a senior industry analyst at Bankrate, a consumer financial services company. “For years, we’ve been hearing card issuers say they knew delinquencies were going to go up from their artificial pandemic lows … and then they have been backing off lately.”

Other factors played a role as well. Inflation, while still not at the Federal Reserve’s target of 2%, has dropped below its 2022 peak of 9.1%. And since last summer, the Fed has been carefully lowering interest rates from their historic highs, easing some of the pressure on American consumers.

Meanwhile, banks and credit card companies have driven delinquencies lower by simply issuing less credit. According to a survey by the New York Fed, the rejection rate for credit card credit reached 22.1% in February, up from 9.7% in 2020.

Those rejections have taken a toll on the amount of credit Americans seek. The share of discouraged borrowers — people who needed credit but didn’t bother applying because they expected not to be approved — reached 8.5%, the highest rate since 2013, according to the survey.

Delinquencies “are coming down in part because banks have pulled back on issuing credit, especially to those more vulnerable borrowers,” Rossman said.

Can the decline continue, even if tariffs bring inflation back up? Rossman isn’t worried. Having seen delays to the levies on both Canada and Mexico, he considers the tariffs “more talk than action at this point.”

“We’re talking relatively small moves, but I would expect a continued stabilization or slow decline in the months to come,” he said.