Credit Card June 28, 2024

Credit Card Debt in a Tough Economy: What Equifax's Latest Data Reveals

Rising inflation and interest rates are impacting consumers' ability to manage credit card debt, especially for subprime borrowers. Lenders must adapt by using comprehensive data and scoring models to accurately assess risk.

Inflation is soaring, interest rates are climbing, and it's putting a strain on many Americans' finances. If you've been relying on your credit card more than usual, you're not alone. But how widespread is this trend, and what are the risks? Let's dive into the latest insights from Equifax.

The Connection Between Credit Card Use and Debt Problems

Equifax's recent data paints a clear picture: as more people max out their credit cards, the number of missed payments and accounts sent to collections (known as "charge-offs") is also on the rise. This is particularly concerning for subprime borrowers (those with lower credit scores), who are seeing their credit card balances grow even faster than those with higher scores.

Why is this happening?

It's a perfect storm of economic factors. Inflation is making everything more expensive, from groceries to gas. At the same time, interest rates are going up, making it costlier to carry a balance on your credit card. For many people, this creates a vicious cycle: they rely on their cards to cover expenses, but the growing debt becomes harder and harder to manage.

Regional Differences in Debt Struggles

Interestingly, Equifax's data also shows that the rate at which debt problems are increasing varies depending on geographic location. This suggests that regional economic factors, such as unemployment rates and income levels, also play a role in how people are handling their finances.

What Does This Mean for Lenders?

  • Consider alternative data: Traditional credit scores might not fully reflect the ability of subprime or thin file borrowers to manage debt. Consider using alternative data, such as rent payment history, to get a more complete picture of borrowers' financial responsibility.
  • Be mindful of local trends: The rate at which debt problems are increasing varies by region. Regional economic factors, such as unemployment rates and income levels, play a role in how people are handling their finances. Lenders should be aware of these differences and adjust their lending practices accordingly.
  • Adapt to the changing landscape: Lenders need to adapt to this changing landscape by using more comprehensive data and scoring models to accurately assess borrowers' risk levels. This can help both lenders and borrowers make more informed decisions.

A Note for Lenders:

Equifax's findings are a wake-up call for the financial industry. Lenders need to adapt to this changing landscape by using more comprehensive data and scoring models to accurately assess borrowers' risk levels. This can help lenders make more informed decisions.

Stay Informed and Stay Ahead

It's important to stay on top of these economic trends and understand how they might affect your company’s financial well-being. Knowledge is power, and by being aware of the risks, you can take steps to protect your credit and financial future.

For further information, you can explore Equifax's insights on: