Nearly five years after the housing and financial markets imploded and sent the economy into a tailspin, new data show that consumers are reluctant to over leverage themselves and are making their credit card payments on time.
Credit card delinquencies declined significantly for consumers in the fourth quarter of 2012, according to the American Bankers Association. In fact, the last time bank card delinquencies were this low, O.J. Simpson was on the run in his white Ford Bronco and George Foreman was heavyweight champion of the world.
The ABA’s Consumer Credit Delinquency Bulletin found bank card delinquencies are at an 18-year low, and that delinquencies in all three home-related loan categories including property improvement loans, home equity loans and home equity lines of credit, are all down. This is the first time since the fourth quarter of 2011 these numbers have fallen.
The ABA counts a delinquency as a late payment of at least 30 days or more.
The composite ratio, which tracks consumer delinquencies in eight closed-end installment loan categories, fell 17 basis points to 1.99% of all accounts during this quarter. This is below the 15-year average of 2.39%. In addition, bank card delinquencies fell 28 basis points to 2.47% of all accounts, which is an 18-year low and also below the 15-year average of 3.87%, the ABA reports.
John O’Meara, chief economist at InnerHarbor Advisors, says consistently-low interest rates are behind the downward trend because they help consumers pay off their debt
“The people who owe are now more capable of paying, which is somewhat like natural selection,” O’Meara says. “A lot of the really crappy debt has been written off.”
The percentage of household income that goes to pay both mortgage and consumer debt, is also down. According to the Federal Reserve, this percentage peaked in 2007 at 17.67% and is now down to 13.6%.
“It’s basically a lot easier for us as a nation to stay current on our debts,” he says.
Banks have also tightened their lending standards and working with more credit-worthy people. They are expanding credit at a much lower rate than they were for the 20 years earlier.
“They’re being more selective,” he says. “It’s a good foundation for growth to have a more creditworthy collection of borrowers. “
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