Higher-income American consumers are showing signs of stress

Inflation, job concerns, and already high interest rates are putting the squeeze on many American consumers.

Now, even high earners, defined as people with incomes of $150,000 or more, are showing signs of stress. These borrowers are increasingly having trouble meeting payments on credit cards, auto loans and mortgages.

The delinquency rate among high earners is near a five-year high, rising 130% over the last two years from January 2023 to December 2024, according to a new report by VantageScore, a national credit company, released early to CNBC.  

“We’ve seen significant increases in services cost, like home insurance and auto insurance, and that is hitting the high-income consumer harder than most. That’s what’s driving that delinquency rate,” said VantageScore CEO Silvio Tavares in an interview with CNBC. 

Tavares says for the most part consumers are being cautious with credit. While credit card balances rose 2.9% year over year in December 2024, that pace was keeping with inflation. Consumers have some running room before hitting their limit.

Overall, consumer credit utilization dropped one full percentage point to 51.6%, the second-lowest rate in 2024.

“They actually had a lot of available credit,” Tavares said. “They just chose not to use it.”

Tavares says it’s a positive sign that consumers are exercising self-control and are more “credit cautious” as the year begins. Despite last year’s strong stock market gains, concerns about inflation and unexpected prices remain. 

Challenges to consumers on the horizon include the Department of Education’s plan to start reporting missed or late federal student loan payments to national credit reporting agencies starting this month.

Tavares says those borrowers who don’t pay those loans can expect an 80-point drop in their credit score. The average VantageScore in December was 702. VantageScores range from 300 to 850, with a score below 660 considered subprime. 

With the cost of insured losses after California wildfires reaching an estimated $40 billion, Tavares says the increase in insurance rates could stress borrowers further.

“The cost of the damage is going to spread across all consumers of those insurance companies across the country,” said Tavares. “It’s going to raise insurance rates, and it’s going to further the delinquencies that we’ve been seeing already in the high income category over the past year.”

Other recent data points to the financial stress facing higher-income consumers.

Bain’s Consumer Health Index, a data series focusing on high earners, showed a 10.8% drop in their intent to spend, driven by uncertainty around the future performance of the stock market after strong gains over the last two years. 

“We see a worrying signal recently coming from upper-income earners; their intent to spend is down, and that worries us, given their disproportionate share of discretionary spending in the United States,” said Brian Stobie, a senior director at Bain and Company, a global management consulting firm. 

The Bain Index also dipped this time last year and recovered, although not back to the previous levels. Since higher-income earners represent the majority of discretionary spending any weakness could have an outsize impact on the economy.

Wages continue to grow, and the unemployment rate has remained around 4%, making the case for continued growth in consumer spending. While the rate of growth has slowed, the direction is still positive. PNC Financial Services expects consumer spending will be around 2%.  

“I think that that’s a good, solid pace that’s consistent with a good economy and a good labor market and sustainable over the longer run,” said Gus Faucher, chief economist at PNC.