Late credit card payments have been steadily decreasing for the last several months. This month they have reached their lowest point in 17 years. Analysts say that the recession has bred greater responsibility in the spending habits of most consumers.
According to the credit reporting agency TransUnion, credit card delinquency rates have been down since April and steadily declining. This month, that figure dropped to 0.60 percent, the lowest point since 1994. Lenders consider a credit card payment delinquent when it is 90 days or more past due.
Cynthia Ullrich, senior director for Fitch Ratings, said:
“Credit card collateral saw positive across-the-board gains for the fourth time in six months. Future credit card performance looks promising, with Fitch anticipating smooth sailing during the second half of this year.”
Credit card use on the rise
Quarterly data from lenders who issue Visa and Mastercard credit cards indicate that, along with the increased diligence of consumers to pay off their debts, credit card use is on the rise. According to TransUnion, the combined debt of all major credit cards increased by $20 per user, to an average debt of $4,699. However, that number is more than 5 percent lower than what it was for the first quarter of 2010.
Borrowers behaving more responsibly
Chet Wiermanski, global chief scientist for TransUnion’s financial services business, said:
“Not only do we have consumers that are using their debt more responsibly and taking out less debt, they’ve also cut back on the number of the cards they carry.”
Wiermanski also noted an increase in the use of debit cards, another indicator of increased spending responsibility on the part of many consumers.
Banks tighten standards
Another factor in the improvement is that most banks, as a result of writing off record levels of bad debts in recent years, have become more selective about who they will approve for credit. Most will no longer issue credit to those with low credit ratings. Many lenders have also reduced credit limits on existing accounts, making it harder for consumers to run up unmanageable debts.
A more cynical analysis
Some analysts believe that tightened lending standards are the largest factor in the improved numbers. Some say the improvement is merely a reflection of record numbers of previous defaults, preventing habitually delinquent borrowers from being able to obtain additional loans.
Late payments affect credit ratings
Making late payments on credit cards has a large impact on a borrower’s credit score. Some lenders, depending on the borrower’s credit history, will report a delinquency of as little as 30 days to credit reporting agencies. A habit of lateness, however, is far worse than an occasional slip.
Lauren Browne of the consumer rights group Consumers Union explained:
“A one-time two or three week late payment will probably not drastically affect your credit score, but repeated late payments will definitely have a more significant effect, even if you are late by only a few days each time. A pattern of lateness is worse than a one-time mistake.”