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Consumer Credit Getting Back On Track

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Americans have made considerable strides in getting their finances and credit ratings back on track in the wake of the recession, resulting in better quality credit histories, particularly where credit cards are concerned.

At the end of April, the amount of money owed on all bank-issued credit cards slipped to $531 billion, down 28 percent from the record high of more than $730 billion observed in January 2009, indicating that consumers are being far more cautious with these accounts, according to the latest National Consumer Credit Trends Report issued by the credit monitoring bureau Equifax. And at the same time, balances on retailer-issued credit cards held more or less steady, at least on a seasonally-adjusted basis, despite the number of these accounts increasing 4.7 percent since December 2010 and available credit limits on them rising $5 billion since the start of 2012.

Further, the “roll rate” — that is, the number of accounts that went from current to 30 days delinquent — in April remained at less than 1 percent for the second consecutive month, the report said. This was the first time in five years that roll rates remained below this level for two months in a row. Along similar lines, charged off credit card accounts — those so far behind on payments that they can no longer be considered collectable by the issuing lenders — have fallen by more than half between April 2010 and April 2012. Currently, the charge off rate stands at less than 6 percent, down from 13.2 percent two years prior.

“The combination of increased available credit and more timely payments among card borrowers has led to the recent growth in card lending,” said Equifax chief economist Amy Crews Cutts. “Consumers are starting to respond to increased credit availability both in cards and other tradelines, a signal of both their financial confidence and improving economic conditions. In turn, this increased consumer credit activity bodes well for U.S. economic growth through the second half of 2012.”

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Payment history and credit utilization are the two most important factors in determining a consumer’s credit score, together accounting for 65 percent of the rating in all. Payment history is the largest aspect at 35 percent, and experts recommend keeping utilization ratios at less than 30 percent to max out a score.

Image: jeeheon, via Flickr

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