Will The Number of Delinquent Credit Card Accounts Increase?
by
Mike Killian |
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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, and is currently a reporter for
CardRatings.com. 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. |
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. |
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Federal
guidance to increase minimum credit card payments as illustrated in the
recent article
Confusion Rampant |
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The advent of
the new bankruptcy law as demonstrated in the article
Affect of New Law |
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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. "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."
I also asked if Consumer Action saw the Federal
guidelines of increased minimum payment affecting this trend. "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..."
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!
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