Studies have pointed out that macroeconomic factors, particularly unemployment, have a significant impact on credit card delinquency rates. However, in the mid 1990s, despite the solid growth of the U.S. economy, credit card delinquency rates were still on the rise. In spite of the considerable increases in incomes, the proportion of consumer debt to disposable income substantially soared, and the rate has stayed over 20 percent. The monitoring reports during this period also showed a steep rise in revolving debt, specifically credit card loans.
Given such economic trends, researchers argue that macroeconomic factors are not a principal determinant of delinquency during this time. This dramatic increase in credit card delinquency levels also generated a series of conversations about their causes. Some critics rest the blame on lenders whose less tight lending standards have given consumers the opportunity to borrow more than they can afford to pay back.
In the recent years, however, all of these unfavorable trends have been reversed. Credit card delinquency rate has fallen to one of its lowest levels since 1994. According to the credit monitoring agency TransUnion, the delinquency rate on credit card accounts has come down by about 0.63 percent in the second quarter, significantly lower than the 0.73 percent of the previous quarter.
This low delinquency rate on credit cards is even more impressive when considering the fact that credit card holders increased their overall debt or credit during the second quarter. The national credit card debt per borrower grew 5.7 percent in the previous year, from $4, 699 in the second quarter of 2011 to about $4, 971 during the second quarter of 2012. This average is relatively low compared to the $5, 719 that credit card holders carried during 2009’s second quarter.
The sharp decline in credit card delinquencies is actually a positive indication that credit card consumers have been making significant steps in improving their payment promptness, especially in recent quarters. On one level, this has given banks a good reason to cheer and an opportunity to dip into money formerly set aside to cover bad loans.
On the other hand, the report suggests that the spike in the delinquency rate shows that consumers who have been deeply affected by the economic recession are now obtaining greater access to credit. However, if the labor market remains feeble and the economy declines further, credit card delinquencies will certainly rise again at some point. As the country’s unemployment rate continues to get worse and hinder economic growth, it is likely that consumers will run out of financial options. It has been further added that if the economy will not show any signs of recovery, the regional and national delinquency rates will probably increase significantly.
Thus, although credit card delinquency rates have dropped to its lowest points since the devastating financial crisis that sparked an economic downturn in the past few years, there is no apparent indication that the rate will remain historically low in the near future. There is, indeed, a distinct possibility that this trend may not continue.