According to Federal Reserve data, serious credit card delinquencies rose sharply in late 2016 and continued to grow through 2018, nearing 5% of cardholders. Similarly, involuntary account closures rose from 4.2% in 2016 to 7.2% in 2018 – but why?
If the economy is doing so well, why are people having trouble paying credit card bills and having accounts closed? Credit scores provide a clue.
A low credit score is a solid indicator of risk for credit card companies. Involuntary account closures are approaching 20% for consumers with credit scores below 680, while transitions into serious delinquency are approaching 25% for those with scores below 620.
In addition, overall revolving debt (mostly credit card debt) has grown from $969 million in 2016 to $1.037 trillion as of the third quarter of 2018.
Given increases in debt and delinquency, card issuers believe they were too free with post-recession credit – and they are reacting accordingly. In t…