Retail card delinquencies at highest level since 2011
Equifax says consumers are ignoring debt on shuttered stores’ cards
Focusing on credit scores and what consumers can do to improve them
Missed payments on retail cards are at their highest level in seven years, according to new data from Equifax.
The credit reporting agency Wednesday said the rate of private label card severe delinquencies – missed payments that are 60 days overdue or more – rose by more than half a percentage point to 4.65 percent. The report covers the period from March 2017 to March 2018.
Retail card delinquencies have been on the rise since 2013, and they’ve reached their highest level since 2011, Equifax said.
Equifax Chief Economist Amy Crews Cutts said in a news release that some consumers are abandoning balances they owe to stores that have closed or declared bankruptcy.
“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,” Cutts said. “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.”
Owning a credit card from a shuttered or bankrupt retailer is generally a no-win situation for consumers. Your credit score can suffer because the card will most likely be closed by the issuer, which reduces your overall available credit (potentially increasing your credit utilization rate). Additionally, any rewards you earned on the card and haven’t yet redeemed could be canceled.
Ignoring an outstanding balance on a card from a closed retailer can inflict severe damage on your credit score. A 30-day missed payment can drop your FICO score by as many as 110 points, and it can hurt your score even more if it ultimately gets charged off by the issuing bank and turned over to a collection agency.
Retail cards also tend to carry high interest rates – the average APR for retail cards is 24.99 percent, according to the 2017 CreditCards.com Retail Card Survey. High interest charges can swell a total balance due if no payments are made for several months.
Many retailers have closed down their brick-and-mortar stores in recent years as consumers have moved more of their shopping online. Major U.S. retailers shuttered nearly 7,000 stores in 2017, according to data from Fung Global Retail & Technology. And the retail sector has the highest share of public bankruptcies in 2018 among industries tracked by BankruptcyData.com.
The 60-day delinquency rate on private label cards is nearly twice the 30-day delinquency rate on bank-issued cards (2.46 percent) calculated by the American Bankers Association in the fourth quarter of 2017.
- AmEx to roll out credit card made from ocean plastic – Credit cards aren't known for being environmentally friendly, but a new card from American Express may change that ...
- Fed: Card balances grew by $700 million in January – Card balances set a new all-time record in January, according to the Federal Reserve ...
- Lenders' right to offset: What you need to know – This little-known clause allows funds to be pulled from your accounts to pay debts ...