Delinquencies on credit card payments are falling
Installment loans are still popular, but surveys are showing that Americans are getting better at managing their credit. TransUnion recently predicted credit card delinquencies should continue to accelerate throughout 2010, but at a slower rate. The studies they did indicated people wanted to pay off credit, and know the importance of a good credit rating, but unemployment is the chief obstacle. TransUnion is estimating Visa and MasterCard delinquencies should drop to about 1.04% by year’s end.
How the numbers are calculated
TransUnion uses a calculation to predict how people will handle their future credit and it involves former payment habits of customers. The common belief is that the past three months’ payment habits are indicative of how a borrower will deal with credit in the future. For example, the chances of a consumer catching up on payments after just missed deadline is 86%, however if they miss two payment deadlines, that percentage drops to 62%. After three missed payment dates, the percentage is under 20%.
Numbers like these allow analysts to project what the future of lending looks like. TransUnion is making predictions that the numbers of non-delinquent payments is increasing, but not as much as it had declined in recent months. Full recovery is still a long way off.
Where the lending industry is headed
Director of consulting and strategy at TransUnion, Ezra Becker said that “delinquencies lag behind other statistics, like the jobless rate. Until more people are back at work, there will not be any dramatic improvements in payments being made on time. The number of new unemployment claims has been lower in recent months than the year-long norm and that’s good news for economists. They are studying the economy looking for nascent signs of relief. They are also trying to forecast the future by combining research on mortgage, car and installment loans. Combining all forms of lending is enabling them to formulate what to expect in coming months.
Arizona is among the states watched the closest. Arizona was one of the hardest hit states in the recession and it’s being watched to see when it will turnaround. It’s the only state that analysts are predicting credit card delinquencies will rise through the beginning of 2010. Becker continued, “Credit card reforms that take effect in February will have a material impact on the credit card industry next year.” He believes that lenders will be tight-fisted still, but will come up with new lending options for those without premiere credit histories. “The industry will adapt to new rules and a customer base with new credit requirements. Lenders will be forced to be more innovative in the products that they offer and how they manage their customers,” he said.
Consumers need to be smart
Though there are fresh products coming to the market, it’s important for consumers to be as vigilant as ever regarding their credit. New reforms are slated to aid people with all types of credit, but that does not mean that the lending process will be any simpler. For anyone needing credit, mortgage loans, car loans, or installment loans, it will be very important to have relatively good credit. Becker continued, “People with very low credit scores may have to wait longer for the door of credit to open for them, but they still need to be fixing their credit now.”
