The news: Credit card delinquencies have sunk to their lowest levels in two years, within striking distance of pre-pandemic levels, per data from VantageScore’s Credit Gauge.

• Only 0.64% of current outstanding balances are 30-59 days delinquent, near January 2020’s 0.62% delinquency rate.
• 60+ and 90+ day delinquencies remain elevated compared to pre-pandemic rates but are also trending down.

What this means: Consumers appear on the path to recovery after a persistent spike in delinquencies. 

Spending and inflation surged after the US relaxed COVID-19 lockdowns, and issuers loosened lending standards to capture the volume boom. But as the Federal Reserve ramped up interest rates to the highest in a generation, federal stimulus dried up, and inflation eroded real wages, that spending quickly became a problem for consumers who had become overextended. 

Threats on the horizon: 30+ day delinquency numbers settling indicate a return to normalcy—but not for all. Educated middle-class workers will be hard hit by the recent cessation of student loan deferments. 

For this group, financial pressures are building:

• Consumer spending may be cut by up to $63 billion a year, per a Bloomberg Economics estimate.
• Only 38% of the 42.7 million people with federal student loans are actively on top of payments, per the Education Department.
• More than 5 million people are in late-stage delinquency, which makes them eligible for wage garnishment—and that number could almost double in the coming months.

To make matters worse, the labor market is weakening. ADP’s June jobs data contracted by 33,000. While the Bureau of Labor Statistics’ data was more optimistic—147,000 new jobs and unemployment down to 4.1%—a sharply contracting workforce will weigh on consumer spending.

Our take: Fewer issuers are tightening their credit card lending standards, but those looking to gain sign ups face troubled waters—consumer demand for credit cards fell in April by the most since the early days of the pandemic, per the Federal Reserve’s Senior Loan Officer Survey.

To increase demand, issuers need to tailor their campaigns to seize on the exact desires of their enrollees—the economic climate isn’t optimistic enough that they can stumble into high demand for their products.

• One in four Gen Z cardholders want the power to select different kinds of financing—debit, credit, buy now, pay later—from the same card at checkout.
• 35.7% of young cardholders also want increases in their credit limits.