Consumers slash instances of late credit card payments

Since the end of the recession, many Americans have been far more conscientious about making sure their various bills are being paid on time in full every month, and that shift in habits proved a boon to the nation’s largest credit card lenders in the third quarter.

Overall, the six largest credit card issuers in the U.S. once again saw instances of delinquency and default take a tumble in the third quarter of the year, according to new data from Fitch Ratings. During the three-month period, however, some of those six lenders did experience small upticks in late payment problems.

Losses slipped appreciably
The amount consumers falling so far behind on their credit card payments that their accounts simply had to be written off by lenders as being uncollectable fell to just 3.28 percent of all outstanding balances, the report said. That was down from the 3.7 percent seen at the end of the second quarter, and well below the 6.68 percent rate seen on average over the last five years.

However, not all lenders enjoyed the benefits of improving customer payment habits, the report said. JPMorgan Chase, for instance, saw a slight uptick in early-stage delinquencies, but that was the exception among the six major lenders. The largest improvement came for Discover Financial Services, which saw late payments slip to 1.81 percent of all outstanding balances, down from 1.91 percent in the previous quarter. However, American Express, which tends to have the most affluent cardholder base in the industry, continued to have the lowest overall delinquency rate at just 1.3 percent.

Trouble brewing for lenders?
As consumers become more conscious about the damage late payments can do to their finances and make continual efforts to slash their outstanding credit card balances, many may now be more wary about borrowing in general, the report said. As such, the card portfolios for the nation’s three largest lenders (JPMorgan Chase, Citigroup and Bank of America), shrank once again in the third quarter. However, AmEx, Discover, and Capital One Financial all saw their portfolios grow slightly.

And at the same time as many consumers continued their efforts to eschew credit cards, those who had them utilized them more often, the report said. Across all six of the nation’s largest lenders, the total volume of charges they purchased ticked up 4.9 percent on a year-over-year basis in the third quarter.

Consequently, profitability generally held steady across the lending industry, relative to historical averages, the report said. However, the figures observed in the third quarter were also somewhat weaker than those in 2011, as earnings have fallen. This is due, in part, to the fact that companies are no longer able to release reserves they had socked away to cover losses from heavier charge off rates, which buoyed profitability in the past.

How the road ahead affects consumers
Despite the shakier ground for the nation’s largest lenders, Fitch’s experts generally believe that given the way in which delinquency and default rates have more or less leveled off in the last several months or more, there is likely to be an ongoing improvement in consumer credit quality, the report said. That should continue at least into next year. However, because the economy at large is still relatively unstable and therefore can take drastic turns, it’s impossible to rule out other changes as well.

For instance, if there were to be a significant downturn in hiring, which could lead to higher unemployment rates, as a result of fiscal drag or uncertainty over the nation’s deficit reduction efforts, which could result in more delinquency and default in the future. However, this change likely would not be that dramatic, given that consumers are generally far less indebted than they were the last time a major financial crisis hit, and lenders still have credit standards that are significantly tighter than they were in the past.

Paying various bills on time is also helpful to consumers in general because it will help to improve their credit score, given that payment history accounts for 35 percent of a borrower’s overall rating. However, another way you can increase your credit safety is by ordering a copy of your credit report and checking it closely for any errors that may have an adverse effect on your credit standing. If any of these entries are discovered, you may be able to work with a credit repair law firm to potentially clear up the issue and return your credit rating to where it deserves to be.