Q2 2024 Insights Report

Growth Tapers for Credit Cards

Credit card activity is highly seasonal, with total outstanding balances commonly experiencing a moderate dip to begin the year before rebounding in the subsequent quarter. While the most recent data did see nominal balances increase by 2.5 percent on a quarterly basis to $903.4 billion, this was the slowest growth rate of any second quarter since 2014, excluding the onset of the pandemic in 2020. Similarly, the rate of card balance expansion on a year-over-year basis has fallen in five consecutive quarters and currently stands at 7.7 percent, down from a peak of 18.7 percent in first quarter 2023. The moderation of growth in credit card balances likely reflects recent bank tightening of lending standards rather than a shift in borrower behavior; in an indication of borrowers’ continued appetite for credit, the overall rate of credit utilization (19.8 percent) in second quarter 2024 was at the high end of the historical range.

While large bank credit card lending has not experienced the sustained, dramatic increase in credit quality over more than a decade that has characterized the large bank mortgage portfolio, the median original credit score for new accounts has climbed by 21 points over the eight most recent quarters. More conservative underwriting is translating into fewer qualified new credit card accounts. The number of new accounts originated in second quarter 2024 was 10.3 percent lower than one year earlier, and the 34.4 million originations to this point in 2024 are the lowest total for a six-month period in three years. Likewise, as shown in Figure 1, inflation-adjusted dollar originations have fallen 9.0 percent over the past year, one of the atypical occasions outside the pandemic when card originations have declined on a real basis.

Credit Card Delinquency Rates Improve, Influenced by Seasonal Factors

Large banks reported 12-year highs for credit card delinquencies on a balance basis in each of the two prior quarters. Thus, it is notable that in second quarter 2024, the shares of outstanding credit card balances that were 30, 60, and 90 or more days past due all dropped, by 24, 23, and 18 basis points, respectively. These were the largest such quarterly decreases in three years. Additionally, total revolving card balances ticked down by 0.1 percent to $628.0 billion, following 11 straight quarters of growth. Despite these trends, it would be premature at this juncture to call this a turning point for credit performance, as credit card delinquency frequently improves in the second quarter. The 30+ days delinquency rate, for example, has improved on a quarterly basis in the second quarter in 11 of the 12 years of our time series, and the improvements in second quarter 2024 were historically consistent with past second quarters. Further, the most recent 30+ days delinquency figure (3.3 percent, shown in Figure 2) is still strikingly high and up 55 basis points from a year earlier. Excluding the pandemic year of 2020, this delinquency metric over the past decade has historically risen by an average of 23 basis points on a quarterly basis in the third quarter, with the 60+ and 90+ rates typically rising as well.

Large Banks Retain High Credit Score Mortgage Borrowers, Keeping Mortgage Delinquency Low

Our analysis finds that approximately two-thirds to three-quarters of mortgage originations that are initially reported by large banks as portfolio owned are ultimately sold or securitized. Thus, it is best to look at the current credit scores of accounts held in large bank mortgage balances to assess the true credit risk that banks elect to retain on balance sheet. As Figure 3 shows, the median current credit score for mortgage loans held by large banks has risen sharply over the series history, especially in contrast to the relatively more stable current credit score for credit card customers. Other measures of borrower riskiness, such as the median original front-end debt-to-income ratio and the median original loan-to-value ratio, have also improved over the large bank data series history.

A stronger cohort of mortgage borrowers has had a positive impact on large bank credit performance. At the start of our time series in third quarter 2012, the median mortgage borrower credit score was 718, and the 90 or more days past due mortgage delinquency rate was 9.1 percent. That delinquency rate includes foreclosures and reflects the slow economic recovery from the global financial crisis. In contrast, in second quarter 2024, the median mortgage borrower credit score was a series high of 791, and the 90 or more days past due mortgage delinquency rate was 0.4 percent, a new series low. Granted, there is documented evidence that credit scores have risen on average over this time period. However, the size of that upward shift in scores is a fraction of the 73-point rise in large bank median mortgage borrower scores, indicating that the selectivity of large banks for mortgage customers is also an important factor.