How consumers are using their credit cards suggests elevated financial stress

American consumers are showing signs of financial stress in the way they are using their credit cards, according to a new report which highlights a concerning rise in the delinquency rate.

While credit card balances in December were up 2.9% year-over-year, the highest rise in a year, this can be mostly attributed to a corresponding rise in inflation for 2024. Adjusted-for-inflation balances were flat and the average balance was $6,583 compared to $6,398 in December 2023.

VantageScore’s CreditGauge report, which analyzes the health of US consumer credit, shows that the average VantageScore 4.0 score was unchanged at 702, while the scores ranged from 300 to 850.

"Consumer spending offers a mixed picture as we enter 2025," said Susan Fahy, executive vice president and chief digital officer at VantageScore. "Though consumers continued to spend in 2024, it was largely in line with the inflation rate, indicating they entered the new year leveraging their credit mostly for necessities.”

Cautious consumers mean that overall consumer credit utilization dropped one full percentage point to 51.6%, the second-lowest credit utilization rate in 2024. Overall credit balances fell 0.9% or $952 in December 2024 compared to the month before, driven by homeowners paying down mortgage debt while new home sales were constrained.

However, with economic challenges including interest rates, the cost of living and a softer labor market, delinquencies rose to near their highest over the past five years with increased year-over-year delinquencies across all VantageScore credit tiers except VantageScore Superprime (781-850).

“Delinquencies remain a concern as they sit near the highest levels since just before the pandemic and continued to worsen among the riskiest credit tiers, a sign that consumers are still feeling strained and are spending in moderation," added Fahy.