With credit card delinquency rates at their highest levels in more than a decade, getting approved for a new line of credit is getting harder, Fed analysts warned.

According to a new report from the Philadelphia Fed, 3.19% of credit card balances were at least 30 days past due by the end of the third quarter of 2023.

That’s up from 2.76% in the second quarter and the highest level since 2012.

Just as concerning, the percentage of balances that were at least 60 days and 90 days past due shot up to the highest levels since the beginning of Covid.

“All stages of delinquency rates now exceed pre-pandemic levels for the first time,” Fed economist Gene Huang and senior analyst Anna Veksler wrote in the report.

In even more bad news, the Fed researchers found that only 33.18% of accounts paid their balance in full—suggesting that 1 in 3 Americans are carrying a balance every month.

That’s the highest level since 2020.

Since 2020, “the share of accounts making the full payment has moderated, driven by strong consumer spending and dwindling government support,” the researchers said.

“Greater consumer fragility,” as the Fed described it, makes banks think twice before granting new lines of credit. According to the researchers, banks’ rejection rate today is the highest in the past year.

Natural rebound or something to worry about?

While experts generally agree that rising delinquency rates are a source of concern, they’re split on how bad the problem is—and what it says about consumer finances.

On the one hand, Smead Capital Management CEO Cole Smead said, “We’re coming off really low delinquencies” in 2022, “so you’re going to see a natural uptick.”

CFRA bank analyst Alexander Yokum adds that rising delinquencies aren’t a big deal “with unemployment under 4%,” suggesting that Americans will continue making payments so long as they’re employed.

But according to Odeon Capital analyst Dick Bove, banks are getting red flags from retailers, who’ve warned for months that customers are having trouble paying their debt.

Credit card losses are “the big issue that certain banks have to worry about,” he told Yahoo Finance. Currently, credit card issuer Capital One and digital bank Ally Financial face some of the biggest risks.

“I think we’re going to see a wave of loan losses for both these companies,” Bove said.

The good news is that banks seem to be prepared for a delinquency spike and have set aside cash to cover bad loans, according to Stephen Biggar, an analyst at Argus Research, a New York-based market research firm.

Banks are “thinking that the higher interest rate environment, what the Fed was doing to take the heat off of such high inflation, was going to result in a downturn and an uptick in unemployment,” he said. So they've increased the amount of dry powder they have.

The real reason delinquencies are rising

Credit card delinquencies don’t happen in a vacuum, but rather depend on the overall debt households carry, according to Wells Fargo economist Seery Grein.

“Households who have other debt, so student or auto loans, for instance, are actually seeing delinquencies rise fastest in terms of their credit card purchases,” she said, adding that delinquencies tend to jump when interest rates increase.

Creditnews has recently reported on a sharp rise in auto delinquencies, especially among subprime borrowers.

In September, the percentage of subprime borrowers who were at least 60 days behind on their car payments increased to 6.11%—the highest since at least 1994.

Student debt is another mounting issue after the government resumed mandatory payments in October. So far, millions of borrowers have refused to pay.