Paying On Time Becoming a Daily Trend

This summer had more than its share of economic ups and downs, but many of the major banks reported that most of their consumers continued to make their payments on time. Four of the six largest banks reported that default rates were continuing to fall.

American Express, Bank of America, Chase, and Discover Financial all reported big declines. Capital One Financial Corp. and Citibank are the only companies that recorded an upswing in the number of consumer late payments.

Capital One also experienced an increase in the amount of late payments that were 30 days or more. Analysts rely on this number, because it is an important indicator for future default.

There have been increases from month to month, but as a whole defaults and delinquencies have fallen to historically low levels. In July, a few banks showed increases, but as a whole charge-offs, delinquencies, and defaults had decreased. In August, Citibank reported a default rate of 6.92 percent of annual balances. This jump propelled Citibank to the credit card issuer with the highest default rate— beating out Bank of America. Bank of America had 6.79 percent rate.

In the second quarter of last year, the Federal Reserve reported that credit card issuers had a jump in charge-off rates. At that time charge-offs were at 10.96 percent. Now, in the most recent second quarter, charge-offs half been reduced in half and are at 5.6 percent. Across the industry delinquency rates are also down to record lows. In the second quarter of 2009, the delinquencies were at 6.76 percent; this year’s second quarter shows that delinquency rates are down to 3.62 percent.

Consumers are finding it easier to keep up with their payments because the balance total has declined drastically since the beginning of the recession. And now that consumers have lower balances, which means that they pay lower minimum payments.

According to data from the Federal Reserve, total revolving credit, which mostly includes credit card debt, dropped down to 5.25 percent in July of this year. This means that credit card debt was at $792.5 billion. That is 21 percent less than it was in 2000, when it peaked at $957.5 billion. The drop in credit card debt is a combined effort by consumers who are dedicated to paying off their debt, and banks charging-off delinquent accounts.

As a whole, analysts expect that the industry rates will remain low, even though each individual bank may see slight increases in certain areas. “It’s hard to evenly predict what’s going to happen in the future, but the improvements that we have seen this far lead us to believe that consumers are on the right track,” said Roman Shtyen CEO of Credit-Land.com, a credit card research website.