Credit Metrics Inching Toward Normalcy, According to August Results

Credit card delinquency rates inched up slightly in August and most credit issuers also saw increased net-charge-off rates compared to July, according to a Seeking Alpha report Thursday (Sept. 16), a couple of signs that the elusive “new normal” may be coming to the credit metrics arena soon.

Most consumers kept current on their credit card payments during the COVID-19 pandemic, thanks in part to federal government stimulus checks and increased unemployment benefits, which provided a boost in credit metrics, the report says.

At the same time, people were borrowing less money, which led to banks realizing lower profits from consumer lending during the period, another trend that’s turning around. Capital One, Discover Financial and Synchrony Financial saw loan balances increase for four months in a row, according to the Seeking Alpha report.

Don’t expect a sudden reversal in the credit metrics or a quick return to pre-pandemic levels, though. The so-called normalization — or return to levels not seen during the coronavirus outbreak — is expected to come gradually, according to Wolfe Research analyst Bill Carcache, who expects net-charge-offs won’t go up significantly until the middle of next year.

Related: US Credit Card Issuers Up The Rewards Ante To Attract Cardholders

Not surprisingly, U.S. credit card companies are trying to entice households to take a more active role in the U.S. economic bounce-back by using some of the money they stashed away during the pandemic rather than borrowing more, like what usually happens during financial upswings.

Companies seeking new customers were up 85 percent from May 2020 to May 2021, according to the Financial Times, which cited data from analytics company Competiscan. Credit issuers area also offering zero percent interest rates on balance transfers for up to 18 months, according to the Times.

“Balance transfers really are the engine that helps issuers keep outstandings on the books,” Jessica Duncan, director of Payments Insights at Competiscan, told FT, adding that those customers present greater credit risks.