Will The Number of Delinquent Credit Card Accounts Increase in 2006?
By Mike Killian,
CardRatings.com
The American
Bankers Association (ABA) recently posted statistics concerning delinquent
credit card payments. The data indicates a continued high delinquency rate,
which in turn leads to lower credit scores since past payment history accounts
for about 35% of one's credit score. The more recent a tardiness, the more
credit score points are sacrificed. A consumer could be 30, 60, 90 or more
days late on an account and the impact on his or her score becomes
progressively more pronounced. Logically, a history of late payments on
several accounts will cause even more damage than just a single account. The
good news is that by paying your bills consistently on time, you can greatly
improve your overall score.
In a press
release by the ABA, the ABA's chief economist, James Chessen, suggested 4th
quarter gas prices and stronger economic indicators "leaves me hopeful that
delinquencies will continue to fall." But he conceded that the adverse impacts
of a string of devastating Gulf Coast hurricanes have yet to be fully felt on
consumers' pocketbooks.
Chessen predicted that the hurricane impacts were likely to be spread out over
the final three months of 2005 and the first three months of the 2006. The
statistical analysis is not yet compiled and remains to be seen.
But I wondered if delinquent payments might be impacted further by adding
three other concerns.
Federal guidance to increase minimum credit card payments as illustrated in
the recent article Confusion Rampant
The advent of the new bankruptcy law as demonstrated in the article Affect of
New Law
The normal Christmas holiday spending spree by consumers as discussed in the
article Holiday Spending
Fully aware that even ABA was "crystal balling" the future, I asked Linda
Sherry, Director of National Priorities at Consumer Action, if she anticipated
holiday spending to affect this delinquency trend.
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"Every year
there are people who complain about credit card hangover after the holidays.
Our complaints don't really show a spike [after the holidays], just
continued complaints about unfair treatment to folks with large balances....
I see these as 'captive customers' who can't jump to another card, so the
[card] companies do what they want."
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I also asked if Consumer Action saw the Federal guidelines of increased
minimum payment affecting this trend.
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"We have seen
some complaints about this and the ones we have seen are pretty shocking.
One guy's minimum monthly payment jumped from $282 to more than $800!
Obviously he had a large balance..."
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Naturally, we will have to wait for the official reports on whether credit
card delinquencies will rise or fall in 2006. One thing seems certain, though.
Even if delinquencies fall, they will certainly negatively affect our economy
for some time to come. Furthermore, we can be sure that delinquencies can
stagger our personal budget with many late fees hovering around $30.
Unfortunately, the effect of delinquencies on consumers goes far beyond late
fees. Interest rates on many delinquent accounts quickly soar to above 30% and
remain there as long as the creditor chooses. Finally, because of universal
default policies, being delinquent on one card can trigger penalty rates on
others, even if your payments are current on your other cards.
The bottom line is, even if all you can do is pay the minimum payment, DO IT!
We welcome your comments about credit card and other money issues in our
popular credit forum!
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Mike Killian has been writing about credit and debt management issues that
are of importance to consumers for over 8 years. He formerly served as the
Guide to About's credit site, which was recognized by Forbes Magazine's
"Best of the Web" for 5 of the last 6 years. Mike has also offered debt
elimination seminars to businesses and community colleges for many years.
Mike offers free consumer advice on the
CardRatings.com
Credit Forum as well as on his own site,
FreeMoneyTraining.com. While at his site, you can view additional
articles as well as his schedule of upcoming seminars.
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