An article in Tuesday’s Wall Street Journal highlights a report from the American Bankers Association which estimates the delinquency rate on credit cards issued by banks fell to 2.41% at the end of the first quarter this year. The 15-year average delinquency rate is a much higher 3.87%, according to the ABA report.
There are several reasons why credit card delinquency rates remain so low:
• Banks quickly wrote-off nonperforming loans during the recession which closed many delinquent accounts.
• Banks have also increased lending standards for issuing new credit cards and decreased credit lines on many existing accounts. Financial institutions are now taking many additional steps to make sure that new cardholders are able to repay their balances.
• Consumers are generally carrying smaller balances on their credit cards now than before the recession, which makes it easier for them to stay current on their payments.
Despite the industry’s low delinquency rates, credit card issuers have mostly resisted the temptation to relax their underwriting standards. They are very selectively extending credit to consumers with damaged credit, looking for individuals for whom traditional credit scoring methods might not reflect their true creditworthiness.
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