By: Tim Brugger, Debt.com Financial Fitness Planner
The idea of the credit card industry improving may seem a bit optimistic, particularly with the wounds from the credit crisis still fresh in many minds. But the news coming from the leading lenders regarding defaults, net charge-offs (NCOs) and balances is good, maybe even better than good, almost across the board.
All the major players in the credit card industry recently announced that defaults and late payments are the lowest they’ve been in years; since pre-Recession levels even. This is a great sign for the economy, and the impact is already being felt by consumers.
The Particulars
Just last month we saw five of the 6 largest credit card issuers announce a decline in credit card defaults, with Bank of America the only institution bucking the trend. Though, even their year-over-year results were significantly improved; from 14.53% last year to a current default rate of 8.25%.
An indication of just how much the sector has improved of late, JP Morgan announced their annualized NCO’s decreased to 5.60%, down from 6.02% the month prior. This compares to 10.91% this time last year, and is the lowest default rate since 2008. The news is much the same for American Express, Capital One, Discover Financial and Citigroup.
Not surprisingly considering the positive news regarding defaults, the entire industry saw improvements in delinquency rates as well. JPMorgan Chase, one of the country’s leading credit card issuers, saw their delinquency rates decline to 2.86%. This marks the fewest delinquencies for the bank since the summer of 2007.
What makes this exciting for the U.S. economy, and by extension all of us, is the decline in defaults and late payments come in conjunction with increased usage. Take Discover Financial as an example. They recently announced the number of transactions were up 25% over last year, even with their defaults down to 5.01% from over 8.5% last year.
The Impact
The economy can’t truly recover until consumers begin (responsibly) spending again. The news from the world of credit cards supports the fact this is exactly what is beginning to happen; and that’s good news for everyone.
So, what does this mean for consumers? According to the Office of the Comptroller of the Currency (the folks that monitor this sort of thing) some banks are beginning to loosen credit card lending standards. This includes both lowering credit score standards and raising credit limits. Only a small minority of banks are actually making it tougher to get credit, reversing a trend of tightening standards industry-wide.
Keeping it Going
Sustaining this shift in credit card usage and the industry in general will require us to employ the lessons learned over the last few years. Responsible use of credit is a good thing, for us and the economy as a whole. Of course the key word; as it always is when discussing debt, is responsible.