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    Posted April 14, 2014 by

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    Credit Card Delinquencies are Expected to Increase


    Collection Agency / Judgment Collection


    U.S. and Canadian bank risk professionals surveyed by FICO believe that delinquencies on credit cards and consumer loans will increase over the next six months. A separate survey finds that delinquencies increased at the end of 2013.

    Consumer credit risk appears to be a concern again as the economic recovery moves into its fifth year since the Great Recession, according to FICO’s latest quarterly survey of bank risk professionals in the U.S. and Canada.

    Delinquencies on credit cards and auto loans, as well as total delinquencies on all consumer loans, are expected to be at their highest levels since the fourth quarter of 2011.

    The American Bankers Association recently reported in its Consumer Credit Delinquency Bulletin that bank card delinquencies saw a slight fourth quarter increase in 2013. The rates increased five basis points to 2.6 percent of all accounts—but remain nearly 32 percent below their 15-year average rate of 3.81 percent.

    In the FICO survey, 44 percent of respondents reported they expected delinquencies on credit cards to increase during the next six months, and 35 percent said delinquencies on car loans would increase. Among those polled, 43 percent expected the total number of delinquencies on all consumer loans to increase.

    This is the fourth consecutive survey in which respondents’ pessimism has increased with regard to delinquencies on credit cards and auto loans.

    “We’ve seen concerns about delinquencies creeping up for a few quarters,” said Andrew Jennings, chief analytics officer at FICO and head of FICO labs. “This can be interpreted as a healthy sign after lenders spent much of the past five years constricting credit availability and being risk-averse. These numbers mean more people are gaining access to credit, but we need to keep a close eye on the risk levels of these new loans. If delinquencies reach an uncomfortable level, we may see lenders pull back again.”
    ABA Chief Economist James Chessen is cautiously optimistic about the future of delinquency rates.

    “While the economy continues to improve, a cautious and conservative approach to debt is critical,” Chessen said. “Some people are still struggling to meet daily expenses, and a job loss or other economic hiccup can make it difficult for them to pay their bills. Saving emergency funds and creating a financial buffer can help safeguard against unexpected bumps in the road.”

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