The delinquency rate on store-branded credit cards has reached a seven-year high, according to data released by Equifax, and the credit bureau is concerned that this could be a sign of household debt problems on the horizon.
But whether individuals have stopped or cut back on making payments on their retail credit cards because they are having financial problems or because they think they don’t need to make payments on those debts anymore if a retailer is having financial trouble or has filed for bankruptcy protection is not entirely clear, Equifax noted.
The 60-day delinquency rate on was are known as private-label credit cards was 4.65% currently, according to Equifax, up from 4.08% 15 months ago. The 4.65% represents the highest delinquency rate on private-label credit cards in seven years.
“This is a huge mistake as the lenders behind the private-label cards are still reporting to credit bureaus, and the creditors to the retailer are keen to collect any outstanding accounts receivable toward their outstanding debts,” says Amy Crew Cutts, chief economist of Equifax, in a published report. “The decision not to pay on these cards in the hopes that the retailer will forget them will haunt these consumers for a while and will impact their ability to take out credit in the future.”
There are other possible reasons to explain the uptick in the delinquency rate. Banks, for example, have loosened the underwriting criteria they use to determine whether an individual is likely to repay a debt, and approved more credit cards to borrowers with less-than-perfect credit. Those subprime borrowers may now be having a harder time repaying their unpaid debts as interest rates have started to rise. The average interest rate for private-label cards is significantly higher than for traditional credit cards. The interest rate on private-label credit cards is about 25.5% currently — up from 24.99% six months ago — while the interest rate on traditional credit cards is 16.73%, up from 16.17% at the start of the year.
