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The National Default Rate: Are Borrowers Paying Up?

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Timely debt payments, particularly on credit cards and first mortgages, have helped rejuvenate consumer credit and create a year-over-year decline in the national default rate.

The S&P/Experian Consumer Credit Default Indices released data Sept. 17 showing the national composite default rate at 1.34%, down from 1.35% in July and 1.5% in August 2012. Though the percentage of consumer loans ending in default increased slightly from June to July, the credit card default rate hit a new low in August, down 10 basis points from July and down 65 basis points from the same time last year.

A low first-mortgage default rate of 1.23% also contributed to the composite default rate decline. In July, 1.25% of first mortgages ended in default. A year ago, 1.4% defaulted.

Good Consumer Behavior

The strength in credit card and first-mortgage payments overcompensated for slight increases in the second-mortgage and auto loan default rates. In a news release about the data, David M. Blitzer, managing director and chairman of the index committee for S&P Dow Jones Indices, said the quality of consumer credit remains healthy.

“The indices are back to pre-financial crisis levels and are stable,” Blitzer said.

In addition to national default rates, the data highlights consumer credit in five metropolitan statistical areas: New York, Chicago, Dallas, Los Angeles and Miami.

After each city saw default rates increase in July, New York and Los Angeles saw their default rates drop. Those changes, along with increases in the other three cities, were small.

Stay on Top of Bills

Low default rates reflect smart consumer financial behavior, as late payments can hurt credit scores. A low credit score can make it difficult for a consumer to obtain loans or good interest rates.

Consumers should not only stay up on bill payments but also monitor their credit scores and work to build them. With Credit.com’s free Credit Report Card and monthly updates, consumers can gain insight into their financial behaviors and how they impact their credit scores.

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