After five years of economic turmoil, it would appear that American credit card holders have learned their lessons, avoiding the over usage of their cards and paying down what existing debt they have. Providing even more optimism is the fact that more and more credit card bills are being paid on time than at any other point within the past eighteen years.
Data released by the American Bankers Association shows that the fourth quarter of 2012 had the lowest amount of delinquent payments as a percentage of overall credit card bills. In addition to this news, reports show that delinquency rates for all types of mortgages and home equity lines of credit are all down as well, which is the first time that this has occurred in the past year.
To put this into perspective: the fifteen-year average for credit card delinquencies is around 3.9%: in the final quarter of 2012, the delinquency rate was a mere 2.5%. The overall composite ratio, as determined by the ABA and keeps track of both loan and direct credit card delinquencies, fell to just 2.0% (the fifteen-year average is 2.4%).
Analysts suggest that most of the debt that was holding the economy back in recent years – debt that would ultimately need to be written off – has gone through the process and that the amount of debt held by most Americans is sustainable and being paid off. This bodes well for the future loosening of credit after a long, hard freeze in which only those with solid credit scores or lots of collateral could secure loans.
Still, many banks are holding back despite the positive indicators. This marks a continued shift in the mindset of many lenders, which previously were loose with their extensions of credits, fueling one of the biggest boom and bust cycles of the past century. As more and more Americans find themselves in better positions to not only pay off their debt but assume more of it, it is inevitable that banks will one day soon begin to reconsider their position.