Understanding the 2023 Consumer Credit Landscape: Insights and Projections for 2024

In 2023, the financial landscape was marked by a unique blend of resilience and caution. As interest rates climbed, consumers, policymakers, and bankers closely monitored the economic environment, anticipating potential downturns. However, the year concluded with a narrative of stability rather than recession. This blog delves into the key trends in consumer credit and debt, providing insights into what borrowers can expect in 2024.

Average Credit Score in the U.S. Increases to 715

Despite the economic challenges, creditworthiness remained stable for most consumers in 2023. The average FICO® Score in the U.S. rose to 715, a slight increase from 714 in 2022. This stability in credit scores reflects consumers’ ability to manage their debt effectively, even as average total debt balances increased by $2,300 to $104,215.

U.S. Consumer Debt Snapshot

Average loan balances grew across most types of consumer debt in 2023, with credit cards seeing the most significant increase. The average credit card balance rose by 10% to $6,501, driven by higher interest rates. Personal loans and auto loans also saw increases, while mortgage balances grew modestly. Interestingly, student loan balances decreased slightly due to various loan forgiveness programs and a repayment pause that ended in late 2023.

Loan Interest Rates Jumped in 2023

The rise in interest rates significantly impacted borrowing costs, particularly for mortgages and credit cards. The average interest rate for a 30-year fixed-rate mortgage increased to 7.31%, while the average credit card interest rate soared to 22.77%. These higher rates discouraged many consumers from taking on new debt, particularly for big-ticket items like homes and cars.

Average Total Debt Levels up in Most States

The 2.3% increase in average total debt in 2023 was more modest compared to the previous year, reflecting a cooling of inflation. States with higher residential real estate prices, such as California and Washington, typically have larger total debt loads. Mortgages comprise a significant portion of consumer debt, and the cost of housing in these areas can greatly impact total debt levels.

Credit Utilization and Delinquency Rates Continue to Increase (but Slowly)

Average credit card debt increased significantly in 2023, with average credit utilization rising from 28% to 30%. Despite this, delinquency rates remained relatively low, although they did increase slightly. As of Q3 2023, 2.01% of accounts were 30 to 59 days past due, while 0.81% of accounts were 90 days or more past due.

What Borrowers Can Expect in 2024

Interest Rates for Consumer Loans Will Decline

The Federal Reserve is expected to begin lowering interest rates sometime in 2024, although the exact timing remains uncertain. Any rate cuts will take time to translate into lower interest rates for consumers, particularly for mortgages and auto loans. Credit card borrowers may see slight reductions in interest rates, but these will likely be minimal given the already high average APRs.

Tighter Budgets

Consumers can expect tighter budgets in 2024 as average monthly payments continue to grow. Auto loan payments, for example, increased by 7.1% in 2023. Additionally, student loan repayments resumed in September, adding an average monthly payment of over $200 for many borrowers. Higher home insurance premiums may also impact fixed-rate mortgage borrowers.

Continued Wariness From Lenders

Lenders are likely to remain cautious in 2024, scrutinizing the credit histories of potential borrowers more closely. They may limit the amount they’re willing to lend and charge higher interest rates to consumers with lower FICO® Scores.

The Bottom Line

Despite some headwinds, experts anticipate lower interest rates and tamed inflation in 2024. This could benefit borrowers more than they currently believe. As consumer confidence declined in 2023 due to unaffordable higher-rate loans, the reversal of some of these rate increases in 2024 may improve consumer sentiment in the months ahead.

At O1ne Mortgage, we understand the complexities of the current financial landscape and are here to help you navigate your mortgage needs. Whether you’re looking to buy a new home or refinance your existing mortgage, our team of experts is ready to assist you. Call us today at 213-732-3074 to discuss your options and find the best mortgage solution for you.

Methodology: The analysis results provided are based on an Experian-created statistically relevant aggregate sampling of our consumer credit database that may include use of the FICO® Score 8 version. Different sampling parameters may generate different findings compared with other similar analysis. Analyzed credit data did not contain personal identification information. Metro areas group counties and cities into specific geographic areas for population censuses and compilations of related statistical data. FICO® is a registered trademark of Fair Isaac Corporation in the U.S. and other countries.