Household debt up; interest rates cited

U.S. household debt rose slightly in the third quarter, reaching the highest level ever as record-low interest rates continue to fuel a surge in home loan borrowing among consumers with excellent credit.

Total debt increased 0.6% to $14.35 trillion from $14.27 trillion in the second quarter, the Federal Reserve Bank of New York said in a report published Tuesday. The gain was led by a surge in new mortgage loans, mostly refinancings, which reached $1.05 trillion, the second-highest in data going back to 2003 and rivaling the historic refinance boom 17 years ago.

But that opportunity hasn’t been available to everyone. About 72% of home mortgages originated during the third quarter went to borrowers with credit scores above 760, the highest share ever recorded in figures dating to 2003, while less than 2% were for borrowers with scores under 620, the lowest share recorded.

The flood in mortgage refinancings helped offset a decline in credit card debt. Balances on credit cards fell to $807 billion, the lowest since 2017, the data show. A nationwide drop in travel, and the related spending that occurs for airline tickets, hotels and other vacation musts, bears much of the blame for less spending, according to Paul Siegfried, who oversees TransUnion’s credit card business. In recent years consumers typically ran up their card balances during the holiday shopping season in the fourth quarter, a trend the pandemic may interrupt.