Consumers’ credit balances grow even as late payment drop

In the month of June, Americans continued their recent trend of taking on more debt, but at the same time, were also successful in once again making sure all their bills were paid on time and in full.

The total amount owed by consumers on all outstanding balances excluding mortgages in June rose to $2.43 trillion, up more than $70 billion from the same month a year ago, according to the latest National Consumer Credit Trends Report issued monthly by the credit monitoring bureau Equifax. This number was the highest seen in the last 28 months and comes after roughly a year of declines in this area.

Much of the increase seen in June was the result of a boom in auto lending, the report said. On a year-over-year basis, this type of credit rose more than $46 billion, and now stands at $745 billion. This trend has been ongoing for a few months now, as auto lending through April of this year reached a total of $134.3 billion, the highest volume seen since 2006, when the number was more than $137.3 billion.

But at the same time, new credit lending across all categories has been increasing, the report said. From April 2011 to April 2012, the total value of credit limits on new balances jumped 14 percent or $30 billion, to $248 billion from just $218 billion.

Non-revolving consumer credit climbed to $1.84 trillion in June, the highest level seen since October 2008's $1.82 trillion, and the largest observed in the last five years, the report said. Meanwhile, unsecured personal finance loans grew by another 6.2 million accounts between the beginning of the year and the end of April, a high not seen in four years and up 6.3 percent from the same period last year. The overall value of these new loans totaled $18.9 million, up more than 11 percent on a year-over-year basis, and this was the first time the average credit limit on that type of financing rose annually since the period between 2006 and 2007.

At the same time as consumers took on more installment loans like those for auto and education financing, revolving debt on retailer- and bank-issued credit cards rose $3 billion in June to $585 billion, but that was up from a low set in May, the report said. Further, credit card borrowing is 22 percent below its all-time peak, which was also in October 2008.

"The trends we're seeing in consumer lending are directly related to overall economic conditions," said Equifax chief economist Amy Crews Cutts. "Households are in better financial condition today, with income, assets and liabilities more in balance, but labor markets are still a weak spot.  This explains the slow but steady rise in demand for new credit, steady utilization rates and declining delinquency rates across all tradelines."

Instances of late payments fall significantly again
Even as borrowing grew significantly on non-revolving credit, consumers continued to reduce the rate at which they fell behind on payments, the report said. Loans that were originated between 2009 and June 2012 made up more than 50 percent of total balances but accounted for less than 15 percent of late payments.

Further, instances of delinquency on both bank-issued credit cards and auto loans slumped to slightly more than 3 percent, the report said. In both cases, those are lows not seen in five years.

For some time now, experts have been saying that late payments on credit cards in particular would have to increase at some point in the near future. Delinquency and default have been shrinking for this type of credit for years now and many believed there would have to be a bottoming-out point simply because continued declines were likely unsustainable. That hasn't happened yet, but could do so soon because lenders are significantly broadening qualifications for new lines of credit and once again issuing cards to subprime borrowers, who are by definition more likely to fall behind on payments.

Of course, making late payments into your various outstanding credit balances will have a significant negative impact on your credit score and also put your finances in more danger. Even missing a deadline by a single day can take a huge chunk out of your rating. To improve your credit standing, you might want to take the time to check your credit report, which will likely give you insight into whether any unfair markings are having an adverse effect. Fortunately, if you do discover any such entries, working with a credit repair company can help to clear up these problems and raise your credit score back to where it should be.

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