Delinquencies rise in February as diverging consumer credit trends emerge (NYSE:RKT)

As consumer spending stays healthy, there are signs that some consumers are starting to experience financial stress. In its February 2024 CreditGauge, VantageScore said delinquencies rose across all credit tiers and products, spanning auto loans, credit card debt, mortgages, and personal loans.

Early-stage delinquencies broke above 1.0% — to 1.04% — in February, from 0.98% in January. The last time the metric exceeded 1.0% was in February 2020, when it hit 1.07%, the firm said.

The average consumer, though, remained credit healthy, but the number of consumers in the VantageScore Prime credit tier (with credit scores of 661-780) contracted for a second straight month. That tier fell by 1.1% Y/Y, with the largest moves “up” into the Superprime (781-850) category or “out” into the Subprime (300-600) tier.

The divergent trends of healthy Superprime consumers, compared with struggling Subprime consumers, “could complicate the Federal Reserve’s efforts to effectively engineer a smooth landing because VantageScore Superprime consumers are still spending and borrowing while VantageScore Subprime consumers are finding it increasingly difficult to stay current on credit payments,” said Susan Fahy, executive vice president and chief digital officer at VantageScore.

New account originations and utilization rates declined, perhaps signs that the economy may slow as consumers feel more stressed.

In February, new account originations declined across all products except auto loans, which rose modestly for the first time in almost five months, VantageScore said. Personal loan originations dropped the most M/M, down 0.31%, likely due to stricter lending requirements combined with higher interest rates. Mortgage originations fell for the fifth straight month.

Balances remained high overall, up $1,526 Y/Y, but edged down by $417 in February compared with January. Credit card, mortgage, and personal loan balances drove the decline, which could reflect seasonal patterns.

The overall utilization rate fell for a second month, dropping by 0.3% from January 2024. At 52.2%, credit utilization slipped to its lowest level since May 2021.

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