You might think that as unemployment rises and a larger percentage of Americans start to tighten up their budget, that credit card delinquency rates would go up. However, in a recent study by the credit reporting agency TransUnion, it has been found that this is not necessarily the case. In fact, for the first time in over a decade, delinquency rates fell more in the 3rd quarter that in the 2nd, showing that despite the economic downturn, this year more people have made sure to pay off their credit card debt on time.
Traditionally, delinquency rates, measured as credit card payments that are 90 days or more past due, rise in the third quarter. However, this year the rate declined 11% from the first to second quarters, and an additional 6% between the second and third quarters, which seems to show a continuing trend of credit card users getting better at handling their debt.
One reason why we may be seeing this change in consumer behavior is due to the fact that as joblessness increases, and people are more concerned about whether or not they will be receiving their next paycheck, they pay off any debt they have so that in the case that they do lose their job, they have a good credit score that will allow them to get through hard financial times with credit. Protecting their credit score by keeping up with their payments is a way of providing a safety net in case they lose their income.
Changes in Credit Lending
According to Ezra Becker, who works for TransUnion financial services, the recent rate hikes and higher interest rates imposed by credit cards have also affected delinquency rates, as many people are worried that they will lose their cards or not be able to pay future, and still more have shifted their funds from savings to paying down debt.
Of course, all of this could change with the new credit card legislation scheduled to go into effect in February of 2010 as put forth by the Credit Card Act of 2009. The laws will change many of the current credit lending policies, and may lead to a return of credit card debt delinquency, or may continue the trend depending on how banks respond to the new regulations. However, there are many who believe that the new Act, by standardizing the rates and fees of that banks can charge, will lead to cards offering a wider variety of features to attract consumers. Hopefully debtors have learned their lesson, but if new legislation creates lower rates and fees, this recent drop in delinquency rates may only be temporary.