Consumer credit health expected to improve slightly in next six months

The economy has generally been improving for some time and that has been reflected in the health of consumers' credit. New data shows those trends will continue, somewhat, at least through the end of the first quarter of next year.

Though all the final data isn't out yet, a number of risk management professionals believe that many areas of consumer credit health will improve between the months of October 2012 and March 2013, though these may have been nominal, according to a new survey from FICO, the industry leader in credit scoring. The largest area of agreement for these industry minds was on the subject of mortgage delinquencies, with 75.7 percent saying that they would either decline or hold steady during the six-month period. That was an increase of 4 percent who felt this way in the second quarter, and 10 percent from the first.

Other areas of major expected improvement
Another large group of experts felt that in general, the total number of delinquencies observed nationwide across all types of credit would slip, the report said. In all, 52.9 percent of those polled felt this way. This trend has continued for some time, but a vocal minority of those who believe they must increase or level off at some point largely feel this way because they say there has to logical point at which late payments hit rock bottom.

Another area of agreement was that credit card balances would increase, with 55.5 percent of those polled predicting this, the report said. The other 44.5 percent felt they would either decrease or stay the same. Overall, though, credit card balances have been rising for the most part in the last several months due to consumers feeling better about their finances, so it is a reasonable step that this trend would continue as other economic factors continue to improve.

Further, borrowing could become less expensive for most consumers, as 10.4 percent said they believed interest rates on various lines of credit would decline in the six-month period in question, the report said. This number may seem relatively small, but it was also the highest proportion of the experts polled since a similar survey in the final three months of 2010. Meanwhile, the majority (54.8 percent) said they believe interest rates on credit cards will remain the same, down from 66 percent in the previous quarter.

Areas of some concern
Not all types of credit are expected to see significant or any improvements during the next six months, the report said. For instance, only 12.8 percent of those polled believed late payments on student loan balances would decline between October and March. However, it should be noted that this relatively low statistic was still a considerable improvement of almost double the 6.9 percent who felt this way in the previous quarter.

And though consumer credit restrictions have been tight in recent years, even with the improving conditions, most experts believe that lenders will still keep restrictions either as tight as they currently are, or even rein them in further, the report said. Only about 18.3 percent felt lenders would slacken credit restrictions.

This came despite the fact that many believe consumers will continue to seek more credit during the next six months, the report said. In all, 44.7 percent said they expected to see an uptick in applications for credit or loans, and another 42.3 percent believe the rate will stay roughly the same during this time. However, this comes despite the fact that fewer – 47 percent, down 9 percent from the previous quarter – felt that applications from consumers only would increase.

Where small business comes in
If applications are expected to hold steady or increase overall in the next six months, and consumer interest in credit could level off, that means that small businesses will likely have to pick up the slack, the report said. Fortunately, many experts believe interest in credit will expand in this area.

In all, a total of 61.9 percent believe that small businesses will increase their requests for new lines of credit, though it should be noted that this is actually down from the 69.1 percent who felt the same way in the second quarter, the report said. However, it is also up significantly from the just 56.5 percent who said borrowing for small businesses would increase in the third quarter of 2011.

Of course, where consumers are concerned, the affordability of and access to new lines of credit remains tied closely to their credit scores. For this reason, it might be a good idea for consumers to check their credit reports regularly in order to determine whether any unfair marks may have negatively impacted their credit scores.