The news: Consumers are staying on top of their finances despite continued pressures of rising fuel prices, resumed student loan obligations, and other affordability concerns, per VantageScore.

• Early-stage delinquencies decreased across all credit tiers MoM and YoY.
• Late-stage delinquencies also declined or held steady across all credit tiers YoY.

How we got here: US consumers have buckled down to stay on top of their debts in the face of challenging economic conditions. In April, the early state delinquencies dropped below pre-pandemic levels to a 3-year low, suggesting continued consumer resilience, per VantageScore. 

Why this matters: US households are achieving financial well-being by tightening their purse strings. Over two-thirds of US adults are cutting back on discretionary spending, per an EY-Parthenon US Consumer Sentiment survey.

This comes at certain retailers’ peril, especially those geared toward luxury categories; however, the lipstick effect may keep merchants peddling smaller luxuries on better footing.

Zooming out: Phantom debt may be concealing lending pain from reported delinquencies. Buy now, pay later providers, with the exception of Affirm, do not report to traditional credit bureaus. As these players grow their reach into ecommerce and in-person retail, more debt may be concealed with these providers, especially from younger consumers using the financing for essentials. Both Affirm and Klarna reported rising delinquency rates and credit losses in their most recent earnings.

Implications for payment providers: Consumers are staying afloat, in part by cutting back their budgets. To earn spending from cautious shoppers, merchants need to make a clear pitch for value or product quality. 

Payment providers can help merchants increase conversion rates by automatically integrating payment information into loyalty programs at checkout to reflect competitive pricing and encourage repeat spending.

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