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Delinquencies on credit card payments are falling

Installment loans are still popular, but surveys are showing that Americans are getting better at managing their credit. TransUnion made a prediction recently that credit card delinquencies should continue to fall throughout 2010, but at a much slower rate. Their studies showed that people want to pay off credit and realize how important a good credit rating is, but the unemployment rate is going to hamper their efforts. Still, TransUnion is estimating that the delinquencies on MasterCards and Visas should both drop to 1.04% by the end of the year.

How the numbers are calculated

TransUnion uses a calculation to predict how people will handle their future credit and it involves former payment habits of customers. Common belief is that the last 3 months of payment history are indicative of how the borrower will deal with credit for the foreseeable future. For example, the chances of a consumer catching up on payments after just missed deadline is 86%, however if they miss two payment deadlines, that percentage drops to 62%. After three missed payment dates, the percentage is under 20%.

Numbers like these allow analysts to project what the future of lending looks like. TransUnion is making predictions that the numbers of non-delinquent payments is increasing, but not as much as it had declined in recent months. Full recovery is still a long way off.

Where the lending industry is headed

Director of consulting and strategy at TransUnion, Ezra Becker said that “delinquencies lag behind other statistics, like the jobless rate. Until more people are back at work, there will not be any dramatic improvements in payments being made on time. The number of newly filed claims for unemployment has dipped in recent months to below the norm for the year, which is good news for economists. They are studying the economy looking for nascent signs of relief. They also are trying to predict the future by researching current trends in mortgage, auto, installment and other loans. Bringing multiple forms of lending under one roof enables them to estimate what's coming down the pike.

Arizona is among the states watched the closest. In the recession, Arizona was one of the hardest-hit and its turnaround is much anticipated. It's the only state that analysts are predicting credit card delinquencies will rise through the beginning of 2010. Becker added, “Credit card reforms that take effect in February will have a material impact on the credit card industry next year.” He believes that lenders will be tight-fisted still, but will come up with new lending options for those without premiere credit histories. “The industry will adapt to new rules and a customer base with new credit requirements. Lenders will be forced to be more innovative in the products that they offer and how they manage their customers,” he said.

Consumers need to be smart

Though there are fresh products coming to the market, it’s important for consumers to be as vigilant as ever regarding their credit. New reforms are slated to aid people with all types of credit, but that does not mean that the lending process will be any simpler. For anyone needing credit, mortgage loans, car loans, or installment loans, it will be very important to have relatively good credit. Becker continued, “People with very low credit scores may have to wait longer for the door of credit to open for them, but they still need to be fixing their credit now.”

Tags: car credit, credit card, investments, lending industry, Transunion