Americans Managing Credit Cards Better

Delinquency Rates Improve in 2nd Quarter, But Are Still Higher than Last Year

(AP)  The rate at which credit card holders fell behind on their payments was far worse in the second quarter than it was last year, but did improve sharply from the alarming level seen in the first three months of 2009.

The shift since the first quarter shows that consumers handled their credit better even as job losses mounted and the recession deepened, according to credit reporting agency TransUnion.

TransUnion said the rate of bank-issued credit card payments that were 90 days or more past due shot up to 1.17 percent for the three months ended in June, from 1.04 percent in the 2008 period.

But the figure was down significantly from the first quarter of this year, when 1.32 percent of card holders were three months or more behind on the payments. That improvement came despite soaring unemployment and other economic pressures.

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Long-term data shows that second-quarter payments are more likely to be made on time than payments in the first quarter. Typically, consumers use tax refunds or salary bonuses to pay off debt, often after running up card balances during the holidays.

But while a decrease in delinquencies in the second quarter from the first isn't unusual on a historical basis, it does mark the first improvement in a year. Moreover, the figures show less impact from the weak economy than expected.

"What's interesting about this year's decrease in the second quarter is we're still in a recession," said Ezra Becker, director of consulting and strategy in TransUnion's financial services group.

In addition to higher unemployment - the jobless rate reached 9.5 percent in June - many people who still had jobs earned less, as employers cut back on hours, overtime and bonuses. "Since unemployment is a primary driver of delinquency, you would have expected an increase in delinquency," Becker said.

The fact that second-quarter late payments fell in that climate shows that consumers are handling their cards better, he said. The figures also reflect aggressive moves by lenders to cut back on credit limits and otherwise manage risk.

Not every statistic was positive.

The average debt consumers carry on their bank cards rose in the second quarter to $5,719, from $5,621 in the 2008 period. It declined only slightly from the first quarter, when the average stood at $5,776. Becker said that figure presents more evidence that people continue to rely on their credit cards, even as they may manage their payments better.

TransUnion samples anonymous data culled from about 27 million individual credit files to come up with the statistics. The agency tracks 90-day delinquencies on credit cards because that is considered a precursor to default, since a card holder would have to come up with four months of payments to bring themselves current.

The credit card delinquency decline follows TransUnion data that showed that the pace of growth for mortgage delinquencies also slowed in the second quarter.

Put together, it's reason for "guarded optimism," Becker said.

"A lot of the data on the economy shows that we have either begun a recovery or we're on the brink of recovery," he said. Credit statistics typically lag the economy, he said, so delinquency improvements are a positive sign for things to come.

The statistics indicate "that we're coming out of the woods, even if we're not out of the woods yet," Becker said.

As a result of the improved delinquency rate, TransUnion has scaled back its forecast for credit card delinquencies for the rest of the year.

The agency now expects the 90-day credit card delinquency rate to reach just over 1.2 percent by the end of the year. That's a big revision from its prior forecast for a rate as high as 1.7 percent by year-end.

"Consumers are clearly managing their credit card obligations and lenders are clearly managing the risk in their portfolios," Becker said.

The big question in coming months is what effect new federal regulations on credit cards will have on the industry.

The Credit CARD Act started to kick in last week with rules that require banks to warn consumers 45 days in advance before raising interest rates, and to give them an option to close accounts and pay down balances at the old rates. Banks also have to give consumers 21 days to pay their bills after sending out statements.

In February, further rules will take effect regarding a host of issues, from how often credit card companies must review accounts after interest rate cuts to how cards are marketed to students. The aim is to give consumers more information regarding their credit and reduce surprises about things like interest rate hikes.

Becker said the law will have an impact on how banks lend and how consumers handle their credit.

[allamerathlete]

I used to be able to remove the items myself but with the credit crunch removing inquiries and credit card delinquencies got too hard. I recommend you use: http://www.removemycreditinquiries.org to get your items taken off.

[Void_Master]

The only reason the number of people behind on credit card payments is down is because most people at the bottom of the food chain have already been squeezed out of the credit market. They're not behind in payments because they've already defaulted and can't get any more credit to get behind *on*.

What that leaves with "working plastic" are those people who were already in a better position to survive an economic downturn in the first place. I'm afraid I don't really see this as good news at all.

We are talking about a significant portion of the population here that has been left out in the cold. Meanwhile they are still unable to pay their bills, still have the debt collectors hounding them and still can't find work. They're also finding it increasingly difficult to put food on the table and worse still, some don't even *have* a table any longer.

You can count on that group to start getting pretty desperate pretty soon. And that's when "it's" *really* going to hit the fan.

[wganot]

Most of my credit card debt is for college costs for my son. It is a fixed interest rate that cannot be changed until it is paid off. Recently they raised the minimum payment from 2% of the balance to 5% of the balance. I was paying more than the minimum, which I could afford, now I will have to borrow or not buy food or medicine in order to make this payment. The minimum rate increases should have been capped.

[presjfk]

Rates went up, fees went up, limits were cut back and many cards were canceled. If you want to call that managing credit cards better, go right ahead.

[erasmus111]

EVERYBODY LISTEN UP!

KNOW HOW THE POSTS REPEAT? TRY NOT REPLYING IN THE "REPLY TO COMMENT" SECTION. IT SEEMS LIKE THOSE ARE THE ONES THAT ARE ALWAYS REPEATED. GO BACK TO THE OLD WAY OF COPYING AND PASTING THE COMMENTS INTO A WHOLE NEW POST. TRY IT AND SEE IF IT STOPS DOING IT.

[Constitionalist]

HAHA, just had to reply to your comment. Oh and the ones that I've noticed repeating mostly had no replies. I think it's more of a lag time problem. Someone hits submit and seemingly nothing happens, so they keep hitting the button until something does. The board then recieves multiples of the same post due to impatience.

[erasmus111]

I don't know. I think it's happening way too often for that. You can reply to a comment on the third page and it will repeat on pages one and two, three and four and on and on.

[credibility2]

No one forced people to foolishly keep accepting credit card offers and then maxing them out their limits once they got the cards with reckless abandon and without any concern for the future. These individuals lived beyond their means and clearly didn't prepare for the possibility of other financial setbacks that might prevent them from honoring their payment obligation to the credit card companies for their own actions. These individuals went into a contract situation for what amounts to an unsecured loan. They obviously didn't ask questions about interest rates, nor did they bother to read the terms and conditions on their agreement with the credit card company. They've shifted all of the blame to the credit card company and refuse to take any responsibility for their derelict actions. It's called being accountable for your own actions. These types should stop whining and refocusing the blame on others and come to terms with the fact that they and they alone are responsible for their predicament. No one told these individuals to go out and get a 47"flat screen TV or some other non-essential thing they didn't need in the first place.

[gbdmd]

Sorry "credibility2", but the looming credit crisis and crunch in the U.S. IS NOT due to rampant irresponsibility by some overwhelming number of consumers. Over 5,000,000 jobs were lost in the U.S. in 2008 with even more losses that continued in 2009. When you have that number of job losses, people (even the most responsible and most diligent) were forced to turn to credit to make ends meet. Additionally, credit card companies, out of an irrational fear of looming delinquencies, began penalizing even good customers. People who were paying their bills and maintaining their credit accounts began to see declining credit limits, increased interest rates and higher fees.

The economic fuel of America is not "big business", it's actually small businesses that drive this country. Small business owners began to see their credit lines dry up. As the big businesses began laying off workers, then that's fewer people stopping by the dry cleaner on the way home, fewer people running out for that quick lunch, fewer people buying Starbucks, fewer people stopping at the grocery store on the way home, fewer people able to afford to "maintain" their cars, and just waiting for things to break.

So... as much as many people would like to believe there was this rampant irresponsibility taking place, the reality is we are all economically linked in some way, and that ripple effect began in mid 2007 and continues to this day. Yes, there are plenty of irresponsible people that buy more than they can afford, but this current situation effects the "every man" and the "every woman", the delinquent and the responsible.