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Consumers Making Fewer Late Payments

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The recent economic downturn caused many Americans to take a hard look at how they handle their finances, changing many of their spending and borrowing habits. That, in turn, has led to the massive declines in delinquency and default during the past few years, and this trend continued through the end of the first quarter this year.

Nationwide, consumers cut instances of late payments on 11 of the 13 major credit categories from January to March, dropping the national delinquency rate on all loans to just 1.7 percent from 1.99 percent at the end of last year, according to the latest Consumer Credit Delinquency Bulletin from the American Bankers Association. This means that these late payments are now at the lowest levels observed since December 2004, as well as below the average seen during the past 15 years of 2.37 percent.

“Sharply lower delinquency levels reflect improving consumer balance sheets, steady job creation and a continuing increase in household wealth,” said James Chessen, chief economist for the ABA. “Many consumers have learned the hard lessons of recession, and have redoubled their efforts to keep debt at manageable levels. … Household net worth rebounded in the first quarter, rising above its pre-recession peak for the first time in over five years. Rising home and stock prices create a wealth effect that boosts consumer confidence, which contributes to healthier finances and a greater ability to pay down debt.”

The only two types of credit that saw an increase in delinquency were those for mobile home purchases and home equity lines of credit, the report said. Otherwise, more major and widely-used types of credit, including credit cards and auto loans all experienced declines during the three-moth period. Bank card delinquency, for instance, dipped to 2.41 percent of all accounts from 2.47 percent. Direct car loans — those granted to borrowers by lenders — saw a drop to 0.91 percent from 0.96 percent, while indirect auto financing — involving an intermediary such as a dealer — slid to 1.66 percent from 1.85 percent.

Avoiding late payments is beneficial to consumers both because it will help them to maintain their strong credit ratings that they may have rebuilt over the past few years, as well as to avoid potential penalty fees and interest rates that could be applied to their balances.

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