Discover and Capital One Card Delinquencies Point to Pressures for Prime, Near-Prime Consumers

Card delinquencies and charge-offs offer evidence of the struggles of meeting current obligations.

They can also be a harbinger of spending slowdowns in the future.

The latest data from credit card giants, disclosed in SEC filings in recent days, show that card delinquencies were on the rise headed into the holiday shopping season — specifically into November and right into Black Friday and Cyber Monday.

Discover One Financial and Capital One, financial services firms that have long had significant presence with prime, near prime and subprime consumers, have disclosed their own data with similar results.

As disclosed in the latest 10-Q filing, Discover Financial Services reported that 81% of credit card loans were made to borrowers with FICO scores 660 or above. The remaining 19% of loans would have been made to borrowers with subprime credit. The company noted in the filing that historically, delinquency rates and charge-offs are higher for consumers with lower FICO scores.

What the Data Shows

In a separate filing with the SEC, the company provided a monthly running snapshot of loan pressures.

As detailed here, at November’s end, the net principal charge-off rate stood at 4.7%, and the delinquency rate of 3.8% was significantly above the corresponding rates of about 2.4% for both metrics in November of last year.

Capital One’s own 10-Q revealed that 69% of card borrowers had credit scores above the 660 threshold, which leaves roughly a third of them below that level. The 30-day delinquency rate was 3.7% at the end of the third quarter of 2023, up from 2.8% last year. And Capital One’s November data showed that card delinquency rates were 4.6%, while net charge-offs were 5.2%.

As PYMNTS reported earlier this month, both American Express and Bank of America saw credit card delinquencies climb in November. American Express’ delinquency rate rose from 1.3% in October to 1.4% at the end of November. Bank of America reported that the delinquency rate for its bank’s BA Master Credit Card Trust II increased from 1.37% in October to 1.4%.

The read across here is that coming into the New Year, consumers may find at least some attention must be paid to repairing delinquencies or risk falling further behind.

In the meantime, as PYMNTS Intelligence data showed, consumers completed 20% of their holiday spending during Black Friday/Cyber Monday.

During the period, buy now, pay later got a significant lift, gaining 72% from the week before Thanksgiving.

Even before the holidays, PYMNTS reported in March that consumers’ savings were insufficient to cover credit card debt, and that significant numbers of households were still tapping into savings to deal with everyday expenses. That means there’s less cash on hand to satisfy the monthly obligations of credit card debt, which doesn’t bode well for consumers with lower FICO scores.