Credit Card Delinquency on the Decline

Amidst all the negativity that sometimes shrouds credit cards there is some amazing news. For the first time in a decade, bank card delinquencies dipped below the 15-year average.  Earlier this month, the American Bankers Association (ABA) released a report announcing this good news.

According to the ABA’s report, credit card consumers overall have done a better job in meeting their debt obligations in the fourth quarter of 2010.  They indicate that this may be attributed to a slowly improving economy which allows consumers to better manage their debt.  Another contributing factor is that for the first time in two years, over 200,000 jobs were created; therefore the unemployment rate dropped to 8.8 percent.

What exactly is Credit Card Delinquency?

When a credit card holder falls behind on their monthly credit card payments this is called delinquency.  Signing an application form for a credit card means there are obligations that must be adhered to otherwise a card holder is putting their credit rating at risk.

In order to remain current on your credit card account, you must pay a certain fraction of your balance every month (your minimum payment).  One way to look at this is that the credit card company has allowed you to have a ‘line of credit’ that is decided by them and when you use the card, you have agreed, at best, to pay the monthly minimum.

Typically, delinquency is not reported to the major credit bureaus until two consecutive payments have been missed.  Consumers have this buffer zone so that they won’t be penalized or suffer significant repercussions.

The American Bankers Association defines delinquency differently.  According to the ABA, a credit card delinquency is a payment that is 30 days or more past due.  They track late payments for bank issued credit cards, home equity lines of credit, auto and other consumer loans.

It is indeed great news to hear that in 2010 the overall delinquency rate improved in the fourth quarter to 2.68 percent from 3.01 percent.  At the end of 2009, the delinquency rate stood at 3.19 percent.

Although consumers appear to be getting back on track with timelier loan payments, the ABA believes that rising energy and food costs may impact consumer’s ability to continue paying their bills on time in the coming months.  Should this be the case, getting out of delinquency now is important.

Getting out of Delinquency

Getting into delinquency is easier than getting out, but make no mistake, getting out will provide you with a lot less stress.  Here are some quick tips to help you:

First and foremost – making one minimum payment stops the progression of delinquency.  Some people think that as long as they make a payment, even below the minimum requested, that they are alright – this is not so.  Unless you call the credit card company and speak to a representative and have this arrangement authorized then paying less is not alright.  There’s no shame in falling short on a payment, just be up front about it – after all, it happens to thousands of people from time-to-time.

Do not confuse matters by paying only the minimum payment.  Sometimes what is on the ‘total amount due’ line is greater than on the minimum payment line.  The amount due is the total figure that you must pay in order to become current and if it is higher than the minimum, then this is likely comprised of multiple minimum payments.

If it is at all possible, pay more than what is on your statement. The higher your balance, the higher your interest, and paying only the minimum requested means that most of what you are paying is going to the interest, not the principal.  Thanks to the CARD Act, credit card companies show you what only paying the minimum will mean for your balance on each of your statements.  Look through that chart, the numbers are quite sobering!

Let’s hope that 2011 continues this positive trend and that more people are managing their credit cards with greater ease!