Borrowers feel the pinch as private label retail credit card delinquencies rise

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According to the U.S. Bureau of Labor Statistics’ employment situation summary for May 2018, America’s unemployment rate fell to 3.8%, extending an impressive streak of job gains. But for many Americans, slow wage growth may be a heavy anchor on that upbeat news.

Buried deeper in the employment situation summary is a concerning statistic: Average hourly earnings increased by just 2.7% over the year. Combine this with news from the Federal Reserve Bank of New York that total household debt increased by $63 billion in the first quarter of 2018, and we’re left with a picture of the economy that’s less rosy.

New data from Equifax shows the percentage of severe delinquency on private label retail credit cards rose to 4.65% in May, and delinquencies are now at their highest level since early 2011. This is significant because retail credit cards can be easier to get approved for and thus may attract a larger segment of subprime borrowers (historically defined in the U.S. as those with a FICO® credit score under 640).

So even though the U.S. economy is adding more jobs, growing private label retail credit card delinquencies seem to suggest that some Americans may be struggling financially. Let’s dive into what these competing figures could mean for you.

What does this mean for you?

While jobs seem to be opening up left and right, wage growth has struggled to keep pace.

This may be putting a strain on the everyday lives of Americans with various types of debt, especially borrowers stuck trying to pay off credit cards with high interest rates.

One of the drawbacks of retail credit cards is that they tend to have higher APRs. According to a 2017 Retail Store Card Survey, retail card APRs are nearly 9 percentage points higher than average non-retail credit card APRs.

With delinquencies on private label retail credit cards on the rise, some borrowers may be falling deeper into debt — even as the economy seemingly recovers around them.

Why should you care?

Before opening a credit card, it’s a good idea to know exactly what you’re getting into. That means looking at your financial situation and honestly assessing if you can pay off your bill on time and in full each month.

We generally don’t recommend carrying a balance from month to month, as this can result in steep interest charges and other potential pitfalls. But if you think you might carry a balance from time to time, you may want to shop around and see if you qualify for a credit card with a low or 0% intro APR.

If you opened a retail card and your account is now delinquent, it may negatively affect your credit. Fortunately, there are steps you can take to deal with delinquent accounts.

What can you do?

If you’ve found yourself in a sticky situation financially, there are steps you can take to reduce your financial stress:

  • Don’t fall for the beliefs keeping you from paying off debt. According to the National Foundation for Credit Counseling’s 2018 Financial Literacy Survey, 38% of Americans surveyed carry credit card debt from month to month. If you can, paying off your balance each month is a good habit to start. Write up your own payment plan and try to stick to it.
  • Steer clear of high-interest credit cards. This may mean avoiding the temptation of certain store-branded retail credit cards, which can carry higher interest rates than traditional credit cards. If you can, take advantage of cards with lower interest rates and consider credit card balance transfers to consolidate and tackle your debt.
  • If you have accounts in collections as a result of delinquencies, plan — don’t panic. Make sure you understand the full amount in collections, know your rights and learn how to make a payment to a debt collection agency.