The credit card industry seems headed for uncharted waters. Inflation, better than a year ago, remains high. Nonetheless, consumers are tamping down discretionary spending as the fears of a recession loom. Government jobs—a traditionally safe, well-paying sector—are under extreme pressure, and border states and the manufacturing sector are wary of the impact of tariffs.
In the current environment, issuers must expect the unexpected. In Seven Credit Card Warning Signs in 2025: Don’t Stop Lending, but Watch Out, Brian Riley, Director of Credit at Javelin Strategy & Research, looks at how this economy will affect the industry as a whole. “We’ve got to deal with what’s next,” Riley said, “and what’s next is uncertainty.”
A Season of Uncertainty
Plenty of worries are already visible in the numbers. In 2022, 3 of every 100 cardholder balances entered 90-day delinquent status. In 2025, the same metric sits at more than 7 of every 100 cardholder balances. Accounts in the 90-plus-day delinquency segment are considered extremely risky and in danger of being charged off, which diminishes credit card revenue.
Why is this happening now? Coming out of the pandemic, many lending standards were loosened so issuers could book more accounts. To get transaction volumes up again, banks brought in some shakier accounts, which become even more sensitive when the economy shows signs of trouble. Given the way FICO scores are distributed, 40% of these accounts are less than prime. That puts an awful lot of credit card holders in a dangerous spot.
Turning to Credit
There’s generally an ebb and flow between credit and debit card usage. In ideal cases, smaller purchases like gasoline and everyday expenses go on a debit card. When consumers start putting milk and eggs onto their credit card, the bank starts to worry.
“I do it by design because I get points for it, and I get 6% back on a card from American Express,” Riley said. “But the person who buys groceries on credit for the first time is an issue. That’s one of the reasons we talk about the importance of knowing your customer in ways that go beyond the typical KYC programs. Is this a customer who’s never carried a balance over from month to month? Are they late for the first time?”
Those sorts of questions become critical at the 90-day point, because that’s when card companies must take action to alleviate the situation. At 180 days delinquent, issuers must take the loan off their books, and it becomes a charge-off. The entire balance then comes straight out of the operating income of the business.
Write-off Numbers in Dangerous Territory
For the private-label credit card business, the sweet spot for these write-offs is around 6% to 7%. If the business is losing 3% of its accounts, that is usually not a problem. But if the business is writing off 6%, that threatens the issuer’s profitability.
Big banks are currently writing off at about 4% of their credit card loans, but small banks are writing off closer to 10%. Riley expects to see industry consolidation resulting from this because smaller banks can’t afford to carry the loss alone.
“At any given point, Citi or Chase might have a million accounts that are in delinquency or in some kind of bad status, but they have sophisticated account queuing that allows them to triage the resources,” Riley said. “They can look at somebody who’s delinquent for the first time and say this person’s never been delinquent before—something happened there, like they lost their job.”
Larger banks also have a bigger account base, which allows them to spread their risk better. Instead of having to adopt dangerous lending standards to add more cardholders, they can lower those standards just a little bit.
The Value of Revolving Debt
One of the most significant data points Riley tackles in his report is the value of revolving debt, which shows how much credit card debt is carried over from month to month. Revolving credit ended Q4 2024 at an estimated $1.3 trillion, which is flat compared with 2023 but 25.1% higher than in 2021.
This number represents a mixed blessing for card issuers. The interest on credit cards is how they make most of their money, so they want this figure to be robust. But the greater the debt becomes for cardholders, the more likely they are to default on it. During the Great Recession, bankruptcy shot through the roof, which is one way to get rid of credit card debt.
“Some people budget their money accordingly and assume some debt, and then all of a sudden the transmission goes,” Riley said. “They put it on their credit card, which is a natural way to survive. When people get stuck in that loop, issuers make tons of money. But now they have a riskier card member because this person can’t pay their bills. Although it’s good income for the issuer, it also means they’re assuming more risk on the portfolio.
“It’s one thing to put a refrigerator on your card and expect to pay for it in 10 months. It’s another thing to pay the minimum due on that refrigerator for 30 years, and it will be out of warranty before you ever pay the thing off.”
Keeping an Eye on Unemployment
The threat of inflation throws another wrench into that equation. The core of the lending calculation is a customer’s ability to repay, so if their salaries are not keeping up with inflation, a problem develops on several levels.
Unemployment will be an important metric to watch. Obviously, people who lose their jobs have trouble paying their bills. Many studies have been conducted over the years that link credit losses to the unemployment rate. If unemployment goes to 6%, charge-off rates are likely to accelerate.
“You always expect lending to government and officials to be very stable, and now they’re losing their jobs,” Riley said. “It’s not just the government employees, but the regulators are at risk, and that changes things as well. And then we have to worry about what’s going to happen to prices at Walmart, which is the biggest importer Mexico and China. There’s so much unsteadiness that lenders really need to pause a little bit.”
