Store-Branded Credit Card Delinquencies Hit 7-Year High

Delinquency rates on store-branded credit cards have reached a seven-year high, according to credit bureau Equifax, possibly signaling broader troubles for household debt down the road.

The share of private-label credit cards with accounts at least 60 days delinquent is 4.65%, up from 4.08% in March 2017, Equifax said Wednesday. That’s the highest since early 2011, the credit reporting agency said.

Equifax blames the trend in part on consumers who mistakenly believe they can avoid paying their credit card bills when retailers go out of business, declare bankruptcy or close local stores.

“This is a huge mistake as the lenders behind the private-label cards are still reporting to credit bureaus, and the creditors to the retailer are keen to collect any outstanding accounts receivable toward their outstanding debts,” says Amy Crew Cutts, chief economist of Equifax. “The decision not to pay on these cards in the hopes that the retailer will forget them will haunt these consumers for a while and will impact their ability to take out credit in the future.”

The past year, Toys R Us went out of business. And chains such as Macy’s, Sears and J.C. Penney have shuttered hundreds of stores.

Other factors are also at work. Some banks have expanded their lending to subprime borrowers as the economy has improved, says Matt Schulz, senior industry analyst for CreditCards.com.

“Store credit cards are generally easier to get than your average credit card,” Schulz says, and are often available to riskier borrowers who may be rebuilding their credit.

Also, he says, private-label credit card interest rates are higher than credit cards generally. They have been rising as the Federal Reserve has boosted short-term rates since late 2015, increasing the payment burden on those subprime borrowers. The rate for private-label cards is about 25.5%, up from 24.99% six months ago, according to CreditCards.com. The average rate for all credit cards is 16.73%, up from 16.15%.

U.S. household debt overall makes up about 10% of income, near an all-time low, according to UBS. The uptick in delinquencies for store-branded cards “could be a sign of trouble on the horizon” for some borrowers, Shulz says.

Delinquencies on credit cards generally, as well as auto and consumer loans, also have ticked higher in recent years, largely because of the financial strains experienced by lower-income borrowers.

Total outstanding credit card debt hit a record $1.023 trillion in November, according to the Fed, but dipped to $1.027 trillion in March from $1.030 trillion in January.