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The Federal Reserve's delinquency rate, which measures the percentage of loans that aren't repaid to banks on time, has historically waxed and waned. The delinquency rate usually follows the beat of the broader economy—rising during recessions and economic slowdowns, and decreasing during periods of economic expansion.
With delinquency rates on the rise, some may be worrying about what economic changes could be on the horizon. But taking the longer view, we can see that delinquency rates, while rising, are:
- Still at historically low levels
- Still well below the historical average delinquency rates
- Not rising significantly for a particular type of credit product, such as real estate loans or credit cards
Let's address each of these observations in turn.
Delinquency Rates Are Rising, But…
This summer's increase in delinquencies is a rebound from a 35-year record low level reached in the second quarter (Q2) of 2021, according to the Federal Reserve.
Consumer Delinquency Reached an All-Time Low in 2021
Since 1987, when the Federal Reserve began collecting delinquency and charge-off data, we've been able to observe how, naturally, delinquency rates increase when the economy's stressed to the point of recession, and decrease as the economy improves. The delinquency rate for consumers reached a peak of 4.70% during the nine-month recession that began in 1990, and a record high of 4.77% in 2009, during the yearslong Great Recession. In the 14 years since, improving FICO® Scores☉ and declining delinquency rates indicate consumers have been able to manage their credit well overall. (Stricter lending standards also played a significant role.)
And as tumultuous as the economy has been throughout the pandemic, delinquency rates have remained low. Government programs, such as stimulus checks, expanded unemployment benefits, the student loan repayment pause and mortgage forbearance programs helped most consumers stay afloat during the initial year of the pandemic. Even after a modest uptick from the record low rate of 1.47% in 2021, the overall delinquency rate of 1.63% in mid-2022 is still lower than at any time in the 2010s, and well below the long-term average of 3.06%.
Delinquency Rates Have Risen Modestly Across Most Types of Loans
Experian collects data on overall delinquency rates for many types of loans, and most have shown a similar trajectory as those from the Federal Reserve—up slightly, but not close to the levels where lenders begin to sweat. Delinquency rates of real estate loans, including mortgages and HELOCs, have increased the least over the past year and are still just half their 2019 rates. Credit card loans have increased slightly more but are still lower than 2%. Only auto loans and personal loan delinquencies have increased, but are just back to around their 2019 levels.
| Delinquency Rates by Type of Consumer Loan, 2019-2022 | |||||
|---|---|---|---|---|---|
| 2019 | 2020 | 2021 | 2022 | Change, 2019-2022 | |
| Auto | 2.76% | 2.05% | 1.75% | 2.62% | -0.14 percentage points |
| Credit card | 2.51% | 1.31% | 1.52% | 1.88% | -0.63 percentage points |
| Mortgage | 1.82% | 1.16% | 0.58% | 0.84% | -0.98 percentage points |
| HELOC | 1.04% | 0.54% | 0.51% | 0.54% | -0.50 percentage points |
| Personal loan | 2.10% | 1.99% | 1.37% | 2.21% | +0.11 percentage points |
Source: Experian; data as of Q2 of each year
Notes: Delinquencies represent loans 30 or more days past due, in dollar terms. The credit cards category excludes retail credit cards.
Only personal loan delinquency rates are above their 2019 levels. Otherwise, auto loans, credit card balances, mortgages and HELOC loan performance is even better than prior to the pandemic. And consumers are paying all of these types of loans on time, which is of course a primary determinant of one's credit score.
Interest Rate Increases May Stress Some Types of Loans More Than Others
The Federal Reserve has raised the key federal funds rate numerous times in 2022 with the goal of wrestling down inflation rates. And while these increases will impact those seeking loans now, those who've borrowed at variable rates (including those who carry credit card balances, as well as most HELOC borrowers) may start feeling the pinch in additional accruing interest.
With the average 30-year fixed mortgage rate topping 6% (the highest it's been since 2008), new homeowners may be stretching to make their monthly payments. If mortgage rates do eventually come back down below 5%, however, new homeowners may be able to refinance what is hopefully a home that's increasing in both value and equity.
For now, as unemployment remains historically low, most borrowers appear able to avoid being late on their loan payments.
Methodology: The analysis results provided are based on an Experian-created statistically relevant aggregate sampling of our consumer credit database that may include use of the FICO® Score 8 version. Different sampling parameters may generate different findings compared with other similar analysis. Analyzed credit data did not contain personal identification information. Metro areas group counties and cities into specific geographic areas for population censuses and compilations of related statistical data.
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