Part of our obligation in this business is to report factual information for our readers. It’s a responsibility we take seriously and we approach it in an ethical way while also working to provide that information in a clear manner. Even we find ourselves struggling to understand the seemingly contradictory reports that come our way each day. The financial sector, as we are all painfully aware of, is anything but predictable. Still, we work hard to provide an analysis that clears up any confusion.
Most recently, we found ourselves seeking out the truth behind to very different reports on credit card late payments. First, we learned that more Americans had fallen behind on their credit card payments while also increasing the debt they’re carrying on those cards. We learned that credit card holders who were paying late increased to 0.85% between October and December 2012.
On the same day, we also learned from another report from The American Bankers Association that the percentage of Americans behind on their credit card payments actually fell to the lowest level in nearly two decades in the final three months of 2012.
Those late payments couldn’t have both increased and decreased. It makes no sense. The data can leave us stumped, too. Then, after we began examining that data, we realized the contradictions aren’t really contradictions at all:
The American Bankers Association reported credit card delinquencies decreased to 2.47 percent. This number is indicative of credit card payments that were only entering into a thirty day late classification.
TransUnion reported the number of Americans who were more than 90 days delinquent was on the rise.
Debt and New Credit
Also, the average credit card debt each borrower carries increased to $5,122 from $4,996 during the same period in 2011. Still, the average debt was lower than a year earlier and if you’re looking at it from a historical viewpoint, it’s still lower than the ten year average balance of $5,389. The increase of credit card use during the fourth quarter is explained as part of a historical trend that always shows heavier credit card use because of the holidays.
There’s also another interesting trend – and frankly, it’s a bit surprising, considering efforts to get the economy moving again. Credit card companies aren’t overly eager in issuing new credit cards; in fact, new credit card accounts fell by nearly 2.5% in the final three months of 2012 when compared to the same time period in 2011. This is especially true in accounts opened for subprime borrowers.
There are predictions that credit card delinquencies will increase this year, too. While it’s mostly believed it will be a factor for those going into a 90 day late slot, it will likely affect all “late payment” classifications. The surprising part is that despite fewer credit cards being issued to subprime consumers, they will nonetheless be the driving force in those late payments, which suggests those who have credit blemishes will possibly worsen their situations with late payments. The average balance on credit cards is also expected to increase to just shy of $5,500. Note that this is higher than the ten year average.
One analyst put it this way:
When you start to see continued spikes (in delinquency and debt), that’s when you start to worry.
Still another analyst has another take:
The predicted uptick in the delinquency rate and balances isn’t alarming.
It’s no wonder so many of us find ourselves confused over the wealth of data that’s released each month.
There are a lot of factors at play. On Friday, the new unemployment numbers will be released. These are important, partly because of the numbers that were released from ADT earlier this week. Worries are that fewer jobs will have been added in March. When wages aren’t meeting the needs of workers and with fewer jobs available, both using and paying for credit cards can often be put aside. Despite the seemingly success on Wall Street, there’s one sentiment most agree on: it’s built on a foundation of paper. That will likely be a hard reality check when it all comes full circle and it’s not likely we’ll be able to bypass it when it does happen.
So which states are most likely to have delinquent credit card consumers? This statistic has historically been consistent, too. It’s the states that have residents who are more likely to live at or below poverty levels who will have the most with delinquent accounts. A few of those include West Virginia, Arkansas and Mississippi. These states also often have above average unemployment numbers, too. Those states that will likely have an easier time meeting their financial obligations include Montana, Minnesota and North Dakota, according to TransUnion. And, as expected, their unemployment levels are better than their counterpart states.
Also, if you’re late on your student loans, there’s a good chance you’re also late with your credit card payments, according to the credit reporting agency. Recent data from the New York Federal Reserve Bank reveals 18% of that state’s borrowers are at least 90 days behind on their loan payments, with about half who saw their balances increase or remain unchanged. This is definitely a new worrisome problem – student loan debt surpassed credit card debt for the first time last year – and it’s not eased up at all.
The numbers can be confusing, especially when so many of the reports and data are based on different numbers, it appears as though no one knows for sure what’s really going on in the finances of Americans. It’s not until you delve a bit further in that you realize the numbers are often based on many different algorithms. Bottom line, though, is that while the economy has improved, we still have a long way to go.
What are your thoughts? Have you ever found yourself wondering where the truth lies in the various data? How does the year look for you and your finances? Planning on paying off one or more credit cards? Worried about your job? Thinking of returning to school? Let us know – share your story with us.