Federal Reserve Board research finds the post-pandemic rise in credit card delinquencies largely tracks pre-pandemic drivers

The Federal Reserve Board published a FEDS Note estimating a simple pre-pandemic model of US credit card delinquency rates and applying it to the post-pandemic period. The analysis finds that the continued increase in delinquencies through 2024:Q3 is broadly consistent with relationships observed before COVID-19, with most of the rise associated with changes in credit availability to riskier borrowers and higher real revolving credit balances rather than unusual pandemic-specific factors. The preferred specification, estimated on 2000:Q1–2019:Q4 data, uses the prime rate, unemployment rate, inflation-adjusted revolving credit balances, the net share of banks reporting tightened credit card underwriting standards in the Senior Loan Officer Opinion Survey (lagged four quarters), and the nonprime share of credit card balances (lagged four quarters). Out of sample, the model predicts about a 120 basis point increase in delinquency rates from 2023:Q1 to 2024:Q3 versus an observed increase of about 125 basis points, while also underpredicting post-pandemic delinquency levels, which the note links to potential pandemic-era credit score migration; holding the credit score distribution fixed at 2019:Q4 materially narrows the level gap and lifts predicted delinquency levels by an average of about 85 basis points over 2023:Q1–2024:Q3. The note cautions that the model is not causally identified and that unmeasured or pandemic-related factors could still be influencing both delinquency outcomes and the predictors.