Credit card debt soared to a new record in the second quarter of 2023, but consumer credit remains strong and could spell a “smooth landing” for the U.S. economy, according to VantageScore President and CEO Silvio Tavares.
Credit card debt topped $1 trillion in the second quarter of 2023, according to data from the Federal Reserve Bank of New York. While debt has grown, consumer credit utilization rates dropped one percentage point in June from December 2022, according to a VantageScore report.
Additionally, the overall consumer is healthy, with an average credit score of 702, the report said.
“We have been contrarian for most of this year because we keep saying that the consumer is healthy because of those high average credit scores and we are proven right today as we see that consumers are really being able to handle that moderate increase in inflation,” Tavares said on Bloomberg TV.
However, there is one exception – the low-income consumer segment. Tavares said credit utilization rates for consumers earning less than $45,000 a year grew about 6%. Moreover, this consumer segment also saw early-stage delinquencies almost double on an annual basis to 1.3%. Last year at this time, they were at 0.8%. Tavares offered the likelihood of a looming “low-income recession.”
If you’re struggling with high-interest debt in a troubling economy, you could consider paying it off with a personal loan at a lower interest rate. Visit Credible to compare your options without affecting your credit score.
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Gen Z credit growing fastest
Credit card balances grew the fastest among Gen Z cardholders in the second quarter of 2023, according to a recent TransUnion survey. Gen Z’s balances increased 51.9% to $55 billion, representing 5.7% of all balances.
This uptick in card balances is expected to drive an increase in refinances, especially among Gen Z consumers, the survey said. Fifty percent of this generational group said they planned to apply for new credit or refinance existing credit, compared to 32% for the entire population, within the following year.
“It makes sense to see Gen Z consumers’ use of credit cards and personal loans increase relative to consumers as a whole as they age into financial independence,” said Michele Raneri, vice president of U.S. research and consulting at TransUnion. “Like the overall population, many Gen Z borrowers are facing the same financial challenges brought on by high interest rates and inflation.
“As a result, they are tapping into these available credit products to help them cope with rising expenses and the tightening of their monthly budgets,” Raneri continued.
If you are interested in taking out a personal loan, you could consider using an online marketplace to compare multiple options at once. Visit Credible to find your personalized interest rate without affecting your credit score.
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Good credit matters when you buy a home
Regularly checking your credit score is an essential step for consumers thinking about purchasing a home and contrary to popular belief, checking it often won’t impact it, Tavares said.
Your credit score can impact how much you pay to borrow. Borrowers with an excellent credit score could see savings as big as $100,000 over the life of a 30-year mortgage, a recent Zillow analysis said.
Some steps borrowers with low credit could take to improve their scores include disputing possible report errors and paying down as much debt as possible, Libby Cooper, Zillow Home Loans vice president, said. This could increase the home loan a borrower qualifies for and potentially help them save hundreds in monthly mortgage payments.
If you think you’re ready to shop around for a mortgage loan, consider using the Credible marketplace to help you easily compare interest rates from multiple lenders in minutes.
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