Bucking seasonal trends, credit card delinquencies decreased during the third quarter. While small, the decrease in late payments from 1.17 percent to 1.1 percent is a positive sign for consumer lending, especially given the fact that consumer delinquencies have not dropped during this period in a decade.
Delinquencies, which are payments 90 days late, are a strong indicator that credit card users will default. Throughout the past year, credit card defaults have skyrocketed to as much as 13% at some of the nation’s largest bank. This has contributed to lower credit supply and higher credit card costs, mainly in the form of higher interest rates and shorter 0% promotional periods on balance transfers. This recent improvement, however, may bring some optimism to major banks, perhaps leading to more accessible credit.
Ultimately, however, this slight decrease in delinquencies may have little impact on credit card lending. Between preparations for the new credit card laws and massive default levels, most credit card companies are reeling. Some, such as Citibank, have embarked on seemingly absurd rate increase sprees. Others have simply reduced their lending, raised interest rates on new customers, and cut off 0% balance transfers.
On the bright side, the decrease in defaults that occurred in the third quarter may be a sign that more Americans are getting their credit card debt under control. This could translate into a longer term decrease in default rates which, in turn, could get consumer lending re-started. Unfortunately, this is unlikely to occur for at least three to six months, as credit card companies will need more than a single quarter of positive news to alter their current frugal course.
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