Consumers once again making more payments on-time

In the years since the recession began, millions of Americans have made more conscientious efforts to get their credit under control, including making more on-time payments into their various accounts. That trend has continued into the third quarter of 2012.

Payments made into various credit accounts that were 30 days or more late slipped once again between July and September of last year, falling to just 2.16 percent of all outstanding balances, according to the latest statistics from the American Bankers Association’s Consumer Credit Delinquency Bulletin. That was down from 2.24 percent in the second quarter, and well below the average delinquency rate seen in the past 15 years of 2.4 percent.

“Consumers are paying close attention to their finances as they continue to pay down debt in an uncertain economy,” said James Chessen, ABA’s chief economist. “The conservative approach consumers have taken to credit over the last several years has allowed them to better manage their debt and better position themselves for the future.”

Unsurprisingly, credit cards lead the way

Much of the decline can be attributed to a sizable drop in delinquency on outstanding credit card debt, the report said. In the third quarter alone, late payments of 30 days or more dipped to just 2.75 percent of all outstanding balances, from 2.93 percent. This was both the lowest level seen since 1994, as well as being more than a full percentage point below the 15-year average of 3.89 percent.

However, other types of consumer credit were more of a mixed bag, the report said. For instance, while delinquency on direct auto loans (those given by a bank, as opposed to a third party such as an auto dealer) rose slightly to 0.95 percent from 0.92 percent, late payments on indirect car financing dropped considerably, to 2.08 percent from 2.23 percent.

Meanwhile, home equity loan delinquency slipped to 4.09 percent of all outstanding balances from 4.2 percent, and property improvement loans dipped very marginally to 0.89 percent from 0.9 percent, the report said. On the other hand, home equity lines of credit — a type of revolving loan — saw late payments of 30 days or more tick upwards to 1.93 percent from 1.91 percent.

“While there are strong signs that the housing market has turned a corner, it will take several quarters before delinquency numbers begin to reflect those trends,” Chessen said.

Other types of delinquency, such as those on mobile homes, RV loans and marine loans, all rose as well, the report said. Late payments on non-card revolving loans, and personal loans, both improved.

Potential concerns moving forward

Of course, the problem with these improvements is that, as experts have long said, there has to be a point at which they logically bottom out, the report said. With delinquency at lows not seen in nearly 19 years, it’s unlikely that these continual declines in late payments can continue very far into the future.

This is especially true because economic improvement has been sluggish at best, and when it comes to late payments, a lot of factors play into determining whether consumers are able to keep up, the report said. For instance, unemployment hasn’t made any appreciable moves in some time, though it continues to generally improve at a slow, steady rate. Unemployment rates are traditionally tied closely to delinquency in general, but the two factors decoupled somewhat in the wake of the recession.

Now, even as unemployment lingers at stubbornly high levels when compared with pre-recession numbers, delinquency continues to slip, and it’s agreed that at some point, the latter will have to begin growing again because these declines are unsustainable, the report said. Evidence of this is reflected in the fact that there haven’t been broad delinquency improvements across most categories since the first quarter of 2012.

“The lack of broad-based improvement remains a cause for concern,” Chessen said. “Some categories have reached historical lows leaving little room for improvement. In addition, slow job growth, continued uncertainty and falling consumer confidence could signal rising delinquencies in the year ahead.”

It’s believed that in the future, consumer confidence will play the largest role in changes in delinquency one way or the other, the report said. In recent months, confidence has shown signs of slipping, which prompted many to scale back the spending they might have been more inclined to undertake earlier in the year.

The ability to avoid late payments make up 35 percent of a consumer’s credit score, so staying current on all outstanding bills is crucial to maintaining good credit health. So too is taking the time to order a copy of one’s credit reports as often as possible, and checking them over closely for erroneous markings. If any are discovered, working with a credit repair agency may help correct the problems.

Posted in Finance
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