Consumers cut overall delinquency on credit in second quarter

Since the end of the recent recession, millions of consumers across the country have tried to prioritize paying back their outstanding debt balances before many other things in their lives, and have been successful in doing so as a result. That trend continued in the second quarter.

The number of loan delinquencies across the country slipped once again between April and June, indicating that consumers are continuing to get a better handle on their finances, according to the latest Consumer Credit Delinquency Bulletin issued quarterly by the American Bankers Association. While instances of late payments didn’t fall across all loan types, the drops in those that saw declines were so significant that the slight increases elsewhere had little impact overall.

In fact, during the second quarter, composite delinquency (defined by the ABA as all loans 30 days or more behind on payments) dropped to 2.24 percent of all outstanding balances, down from 2.35 percent in the first quarter, the report said. That was well below the average seen in the last 15 years, which stood at 2.4 percent.

Credit cards lead the charge

Perhaps the most notable decline in late payments came not due to the largest drop in one type of late bill, but because of the symbolic value in one of the smallest, the report said. Credit card delinquencies slipped to 2.93 percent from the previous quarter’s 3.08 percent of outstanding balances, which was noteworthy for two reasons.

For one, it was the first time delinquency on credit cards stood at less than 3 percent since 2001, the report said. Further, it was also nearly a full point below the 15-year average for this type of borrowing, which now stands at 3.91 percent.

Credit cards were the only type of open-ended loans that saw a decline during the quarter, however, the report said. Those for home equity lines of credit rose to 1.91 percent from 1.78 percent in that time. Meanwhile, non-card revolving loans climbed to 1.35 percent from 1.18 percent.

Close-ended loans more of a mixed bag

While there were a few types of installment loans that saw fewer instances of delinquency between April and June, many of the more common ones actually saw late payments increase, the report said. For instance, personal loan delinquency climbed to 2.15 percent from 2.01 percent. Similarly, direct auto loans saw an increase as well, though late payments there remain some of the rarest examined, as delinquency climbed to 0.92 percent from 0.86 percent.

Further, home equity loan delinquency continued to garner the highest instances of late payments at 4.09 percent, up from 4 percent in the first quarter, the report said. Property improvement loan delinquency also rose, to 0.9 percent from 0.83 percent.

Indirect auto loans, mobile home loans and RV loans all saw delinquencies drop during the second quarter too, the report said. Late payments on marine loans, on the other hand, ticked up slightly.

More in-depth analysis

It is interesting to note that the three categories related in some way to home loans rose during the second quarter, which may be an indicator that consumers are still less secure in dealing with mortgages and the housing market in general, the report said. As a consequence, experts at the ABA believe that there may be some way to go before borrowers can begin to improve their standing in this regard due largely to uncertainty in the market.

Nonetheless, these latest indicators show that borrowers are once again getting back on the right track when it comes to paying bills on time, and that will continue to be a positive going forward, the report said. In all, they may be an indicator that the economic improvements seen in the last year or more might be here to stay.

“Consumers are saving more and borrowing less as they work to pay down debt at a faster rate,” said James Chessen, the ABA’s chief economist. “Economic uncertainty has made consumers hesitant to take on new debt, and building a stronger financial base has become a priority. The lack of broad-based improvement gives us pause about the future. The economy experienced turbulence in the second quarter. Slow job growth and continued uncertainty means many consumers will face challenges managing their debt going forward.”

Of course, even as the economy improves, you will still need to be vigilant about how you deal with your personal finances. For instance, it can be extremely helpful to order a copy of your credit report and check it closely for any unfair markings. These may be having a negative impact on your credit rating, but working with a credit repair service may help to clear up these problems.

Posted in Finance
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