Many American customers are struggling due to inflation, employment fears, and already high interest rates.
Even high earners—those who make $150,000 or more annually—are already exhibiting symptoms of stress. These borrowers are increasingly experiencing difficulties making their mortgage, vehicle loan, and credit card payments.
According to a new report supplied early to CNBC by national credit company VantageScore, the delinquency rate among high earners has increased 130% over the last two years, from January 2023 to December 2024, and is now close to a five-year high.
High-income consumers are being disproportionately affected by the notable rises in the cost of services like vehicle and home insurance. In an interview with CNBC, Silvio Tavares, CEO of VantageScore, stated that this is the reason behind the delinquency rate.
Higher-income earners show caution with credit
According to Tavares, most customers are using credit with caution. In December 2024, credit card balances increased 2.9% annually, but this rate was in line with inflation. Before reaching their limit, consumers have considerable leeway.
In total, consumer credit utilization fell to 51.6%, the second-lowest figure in 2024, a full percentage point.
According to Tavares, they genuinely had a lot of credit available. They simply decided not to use it.
According to Tavares, it’s encouraging that consumers are exercising restraint and being more cautious about their credit as the year gets underway. Even though the stock market saw significant gains last year, worries about inflation and unforeseen costs still exist.
What to watch for ahead
The Department of Education plans to begin reporting late or missed federal student loan payments to national credit reporting companies this month, which will provide challenges for consumers.
According to Tavares, borrowers should anticipate an 80-point decline in their credit score if they fail to make loan payments. In December, the average VantageScore was 702. VantageScores fall between 300 and 850, with a score of less than 660 being regarded as subprime.
According to Tavares, the increase in insurance rates may put additional strain on borrowers, given the estimated cost of insured damages from California wildfires has reached $40 billion.
According to Tavares, the expense of the damage will be shared by all of those insurance firms’ customers nationwide. In addition to increasing insurance prices, it will exacerbate the delinquencies that have been observed in the high-income group for the past 12 months.
High income earners intend to slow spending
Higher-income customers are experiencing financial hardship, according to other recent research.
Uncertainty over the stock market’s future performance following two years of robust gains caused a 10.8% decline in high earners’ intent to spend, according to Bain’s Consumer Health Index, a data series.
Brian Stobie, a senior director at the international management consulting firm Bain & Company, stated, “We see a worrying signal coming from upper-income earners recently; their intent to spend is down, and that worries us given their disproportionate share of discretionary spending in the United States.”
Around this time last year, the Bain Index similarly fell and then rose, though not to its prior heights. Since most discretionary expenditure is attributed to higher-income workers, any weakening might have a significant effect on the economy.
Signs of strength
The argument for sustained rise in consumer spending is supported by the fact that wages are still rising and the unemployment rate is still at about 4%. Even if growth has slowed, it is still going in the right direction. PNC Financial Services anticipates a 2% increase in consumer expenditure.
According to Gus Faucher, chief economist at PNC, “I think that’s a good, solid pace that’s consistent with a good economy and a good labor market and sustainable over the longer run.”
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