The health of the US consumer in 2024
As interest rates may be cut in 2024 and credit card debt is reaching record levels, questions around the health of the U.S. consumer arise. Moody's Analytics Chief Economist Mark Zandi claims that for a robust economy in 2024, there needs to be strong spending from consumers.
VantageScore CEO Silvio Tavares joins Yahoo Finance to discuss the health of the U.S. consumer and some of their strengths and weaknesses heading into 2024.
When asked about repayment of student loans 2024, Tavares says, "We've done some analysis on this at VantageScore, we think that in a worse case scenario as many as 70% of consumers might be unable to resume paying their loans and so that would be very significant and we anticipate that could actually drive down the average credit score."
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Video Transcript
- On credit card delinquencies, how much of that is driven by those higher rates? Consumers, may be swiping without thinking. And then when the payment comes due, realizing that payment is going to be a lot higher, because the rates are higher now.
[SILVIO TAVARES]: You're absolutely right Akiko. And there are two factors, yes the inflation. Well the increase in interest rates, is driving higher payments and that causes people to fall behind. But for most of this year. The other story has been around inflation, the goods and services people are buying, are spending, are costing more. Now the good news is we're seeing that inflation moderating. Really across the board.
But for example, for gasoline, you know gasoline prices are down about 3% on a year over year basis. And so, we're starting to see some of the things that were causing people to fall behind like rising prices and rising inflation. We're seeing that moderate, that's good news. The question is, will that continue into 2024. And we're monitoring that really closely through our VantageScore credit gauge.
- You mentioned the repayments of student loans. Some of that's already been reflected in the data that you pointed to. But a lot of big chunk of that is going to come through come 2024. To what extent does that increase the risk to the upside. How much of that, how much more of that are we likely to see?
[SILVIO TAVARES]: Well, it definitely increases the risk as we look into 2024. We've done some analysis on this at VantageScore. And we think that in a worst case scenario, as many as 70% of consumers might be unable to resume paying their loans. And so that would be very significant. And we anticipate that could actually drive down the average credit score.
Through the end of November, the average VantageScore was 701. A bad score is about 300, 350. A perfect score is about 850. So with the average VantageScore being 701 through November, actually consumers are pretty healthy. But if we look forward into 2024, what we could see is a lowering in that score as delinquencies continue to rise. And as consumers have additional obligations to pay like their student loans. If they miss those we anticipate the average VantageScore could drop by as much as 9 points in 2024. On the flip side, if we see consumers making preparations to pay those loan backed loans back, there's a silver lining there consumers could actually boost their score on an individual basis by as much as 8 to 9 points.
So it's unclear exactly what's going to happen. But it does appear that there could be some additional stress coming, particularly for lower income younger consumers, and that could impact the credit score. That's why we tell consumers check your score that's the first and most important, health first. It's the first and most important step in managing your financial future, is really understanding your credit score. There are a lot of apps out there where you can check your VantageScore. And then you can see how your day to day behavior, in terms of using credit cards paying them off on time. How that's going to impact your score. And it's more important now than ever because of course, interest rates are high. So if you have a good score you're going to be able to get the best interest rates. If you have a low score it's going to be a higher interest rate.
