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Use of Credit Cards Spikes as Delinquencies Plummet

[Thursday, August 1st, 2013]

As the economy continues to recover and the job market improves, more people are getting and using credit.

People are not only using credit cards more, they are paying their bills on time. Credit card delinquencies-defined by a payment 90 days late or more-are at their lowest rate since 1990, according the American Bankers Association (ABA).

The fifteen-year average delinquency rate is an estimated 3.87%. At the end of the first quarter of 2013, the delinquency rate was 2.41%. Banks have not seen low rates like that since 1990, well before the financial crisis of 2008.

Signs of economic recovery

The growth of credit and the delinquency rate are closely watched by economists, as they signal the health of the overall economy. After the recession, people were reluctant to take on more debt-and credit card issuers who were forced to write off bad debt were reluctant to take on risky customers.

Now it seems consumers are ready to take out the plastic again, as the recession fades and low APR credit cards are more readily available. The caution banks showed during the recession is beginning to subside, and balance transfer offers, sign-on bonuses and low APR or 0% APR credit cards are back on the market for people with less than perfect credit.

James Chessen, the chief economist of the ABA, said that the falling delinquency rates are indicative of consumers’ better financial position. That’s because when credit was harder to come by, people were forced to pay down debts, get their finances in order, and stop taking on new debt.

Increasing use of credit

The Federal Reserve, meanwhile, says that the amount of revolving credit being issued is increasing at the quickest rate in a year. The first quarter of 2013 brought the second-biggest monthly gain since 2009.

Student loans and auto loans are also up, but the biggest gains are in the credit card sector. Credit cards issue lines of revolving debt, while mortgages, car loans and student debt are fixed.

As long as consumers don’t get carried away and accrue more debt than they are able to pay off, all signs point to continued economic recovery, the growth of credit and fewer delinquencies.

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