Late payments are at a 17 year low.
The rate of late credit card payments fell to a 17-year low in the second quarter, another sign of household belt-tightening.
The national credit card delinquency rate, which measures payments that are 90 days or more past due, was 0.6% at the end of the second quarter, according to credit reporting agency TransUnion. That’s down nearly 19% from the first quarter and 35% from the second quarter of 2010, TransUnion said.
Contributing to the decline in late payments:
•Households are carrying less debt. Total consumer debt, which includes credit cards, mortgages, auto loans and student loans, fell $50 billion to $11.4 trillion in the second quarter, the New York Federal Reserve Bank said Monday. While the speed of decline has slowed in recent months, total consumer debt is still down 8.6% from the third quarter of 2008, the Fed said.
•Credit is harder to get. Since the recession began, lenders have subjected potential borrowers to greater scrutiny, says Ezra Becker, vice president of research for TransUnion. “Those approved are less likely to default even in the face of continued high unemployment levels,” he says.
•Charge-offs have reduced the amount of delinquent credit. Credit card companies typically write off balances as uncollectible when they’re six months past due. While the default rate has declined in recent months, credit card issuers have written off billions in debts since the start of the recession.
But charge-offs have had a less significant impact on the decline in the delinquency rate than consumer behavior has, Becker says. A TransUnion analysis found that consumers made an estimated $72 billion more in payments on their credit cards than purchases between the first quarters of 2009 and 2010. Five years earlier, consumers made an estimated $2.1 billion more in purchases than payments, TransUnion said.
•Borrowers are paying off their credit cards before they pay their mortgages. Serious mortgage delinquencies increased at a much faster rate during the recession than credit card delinquency rates, according to an analysis by TransUnion.
In the past, consumers were more likely to pay their mortgages before their credit card bills, but the sharp decline in home values has caused some to rethink their priorities, Becker says.
“If you bought your home for $300,000 and the house across the street is selling for $130,000, you have less motivation to pay your mortgage,” he says. “You feel like you’re never going to get even.”
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