Credit Scores Abruptly Plunge As Americans Stop Paying Down Debt; Synchrony Financial Warns

Over the past few years, tens of millions of consumers witnessed a remarkable increase in their credit scores, primarily due to helicopter money dished out by the federal government, rock-bottom interest rates, and a pause on student-loan payments. However, the party has come to an abrupt end as credit scores plunge. 

Bloomberg reports Synchrony Financial is closing inactive accounts and capping card limits for a number of clients as macroeconomic headwinds mount. 

“What we are seeing is people who are doing significant score migration — a 680 or a 690 going to a 620,” Synchrony Financial CFO Brian Wenzel said in an interview. 

Wenzel said, “Folks who had paid down debt, their scores had gone up, and now they’re reverting back to more normal performance.”

The Stamford, Connecticut-based consumer financial services company hasn’t tightened underwriting standards for new accounts but is beginning to notice consumer stress 16 months into the Federal Reserve’s interest rate tightening cycle.

Two years of an inflation storm has sent real wage growth to negative levels, forcing many consumers to drain personal savings and overutilize credit cards to make ends meet. We noted this in “Credit Card Debt Explodes At 2nd Fastest Pace On Record Just As Rates Hit All-Time High” and “Credit Card Debt Keeps Surging Even As Interest Rates Hit Record High.”

Consumers have racked up record amounts of credit card debt while interest rates on these cards have surged to the highest level ever of around 21% on average. Surging debt loads and high rates make paying off outstanding balances even harder for some consumers. 

A lower credit score means consumers will have increasing trouble qualifying for new credit lines, thus cutting off their lifelines. Perhaps that’s why we’ve seen a surge in Google searches for “pawn shop near me” as consumers pawn off items for quick loans. 

Just wait until student-loan payments restart … this will crush consumers even more as millions must divert even more income into debt servicing payments. Maybe consumers are heading into a period of a balance sheet recession.