Most major card issuers are reporting good news and positive trends on credit conditions and delinquency rates. According to recent reports from Reuters, it appears that credit conditions and delinquency rates on accounts are declining. There are possible reasons why we may be seeing such a change. It is too early to tell if this is just a seasonal factor or if it is a good sign that the economy is improving. Unfortunately, the credit card industry should not be celebrating just yet but things are indeed looking up for creditors and the overall picture for consumers in the US.
One Time Occurrence or Trend?
Tax season is always an opportunity for people to get ahead and use that one time refund to pay off outstanding debt. The nice thing for the credit card industry is that when people come in to one time money they usually try to pay off the bill that can eliminate at least one debt. It is less likely that individuals will attempt to pay off large loans such as home equity or a mortgage because the money is not sufficient to satisfy that large of a debt. The best thing to do for consumers it to eliminate a one time debt and the fees associated with it, which is often what happens around tax time. The credit card industry may just be seeing that this change is due to tax refunds. Hopefully not but it is too early to tell just yet.
Interestingly enough, according to economic reports from the retail industry, sales showed an increase in March, the highest since July of 2008. This coupled with the decreased rate of credit card delinquency is a good sign of economic recovery.
Fear of Spending
When people are afraid to spend this negatively affects the economy as a whole. Fear often means a spending freeze. When people have lost their job or fear loosing their job it makes sense that they are fearful of spending more than necessary. Fear of spending puts the creditors and the economy in a difficulty financial position. Spending makes the world goes round but also can be a fast track to debt if you are an individual who is in the position of using credit cards to make ends meet.
If people are insecure about the economy and their job security they will halt their spending patterns to protect themselves. Those that continue to spend regardless of the economy or job security can end up looking at the worst case scenario; no job and a pile of debt. This puts the individual and the lender in a position of loss, often ending up with devastating consequences all around. When people once again feel secure enough to pick up the plastic it is a good sign as long as they continue to manage and pay off debt. The fear of spending seems to be becoming a thing of the past if the trends that are being seen by the credit card industry continue.
Less Debt Means Lower Fees
Loans that are considered noncollectable by the lender are known as charge-offs. Low percentages of delinquency and charge offs are a sign that people are paying off their debt. Most lenders including American Express, Bank of America, Discover and JP Morgan indicated improved credit trends, decreased credit card delinquencies and low charge-off rates. When people become unable to pay their credit card payment and default on this the lender takes a loss until the time that this is collected, if ever.
The truth is that when people fall into debt and cannot pay the lender looses out and in an effort to recoup money, fees are rates increase for those who are paying their bills. The key to lower credit card rates is having less overall risk and fewer delinquent accounts. This is easier said than done.
Analysts report that the number of charge offs or losses have decreased in the early part of 2010. Most major lenders went into New Year expecting to take losses from delinquent payments because of the status of the economy and the trends they say in 2008 and 2009. The industry was pleasantly supported that the losses were not as bad as they had expected; actually they were better than expected.
Similar Posts:
- Delinquency Rates Drop on Credit Cards
- TransUnion: National Mortgage Delinquencies Fall 1.74 Percent in 2010 Opening Quarter
- College Students Should Get A Credit Card Now
- Finding and Keeping the Best Credit Card Rewards
- Separating the Card Winners from the Losers
