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The health of the credit card industry is best measured not by the number of people with cards, but rather the number who pay their bills. Roughly 1 out of 20 Americans with credit files are at least 30 days late on a credit card or other nonmortgage account, according to a 2014 report by the Urban Institute. 1 Bad payment habits can lead to more fees, lower credit scores and, in some cases, bankruptcy.
The good news for consumers is that bankruptcies are down. Approximately 255,000 Americans had a bankruptcy added to their credit reports in the first quarter of 2015 -- 4.1 percent fewer than a year earlier, and the lowest quarterly total since early 2006. 2
There were 935,420 total nonbusiness bankruptcy filings in the 12-month period ending Sept. 30, 2014, down 12.8 percent from the year before. Among businesses, there were 28,319 bankruptcy filings in the 12-month period ending Sept. 30, 2014, down 18.8 percent from 2013. 3
While bankruptcies may be declining, credit card defaults are up slightly or about the same, depending on which numbers you look at. The American Bankers Association reports that the percentage of bank card accounts 30 days or more overdue rose by one basis point in the fourth quarter of 2014 to 2.52 percent. But they remain well below their 15-year average of 3.75 percent. 4
The trend looks similar when examining accounts that have been overdue for three months. TransUnion's Industry Insights Report found that 1.37 percent of borrowers had general purpose credit card accounts that were 90 days or more overdue in the first quarter of 2015, the same as a year before. 5
The New York Federal Reserve Bank measures credit card delinquencies slightly differently. It looks at the percent of balances that are at least 90 days late. For the first quarter of 2015, that rate was 8.38 percent, up slightly from the three previous quarters but still significantly lower than during the height of the financial crisis. 2
Charge-offs, another indicator of credit risk, are down, too. A charge-off occurs when a card issuer gives up on collecting a particular debt. The charge-off rate on credit card loans from the top 100 banks was 3.03 percent in the fourth quarter of 2014, down from 3.39 percent the year before. 6
Who's falling behind
Some demographic groups are more likely than others to miss bill payments. Generally, the younger the consumer, the higher their delinquency rates, with those under 40 years old seeing a slight increase in their delinquency rates between Q1 2014 and Q1 2015. 5
Source: TransUnion Industry Insights Report
Perhaps it's not surprising then that among college students, 26 percent said in a 2014 survey that they have been charged fees for late payments, and 66 percent of those students admitted to having been charged late fees more than once. 7
Certain states tend to have higher delinquency rates than others, too. According to TransUnion's data from the first quarter of 2015, Mississippi had the highest credit card delinquency rate and North Dakota had the lowest. 5
Source: TransUnion Industry Insights Report
Source: TransUnion Industry Insights Report
Calling in the debts
Collection agencies work on behalf of lenders and third-party debt collectors to reclaim past due debts. But fewer people are getting calls from collectors. In the first quarter of 2015, 13.6 percent of consumers had one or more debts in collections. That's up slightly from the fourth quarter of 2014, but lower than any other period since the fourth quarter of 2008. The average amount they owed -- $1,376 -- was the lowest mark since the fourth quarter of 2010. 2
According to industry trade group ACA International, credit card debt made up 10 percent of total debt collected by collection agencies in the U.S. in 2013. 8 However, credit card debt accounts for a smaller share of collections calls than it did in the past. ACA International says that calls about credit card debt accounted for 3 percent of collection agencies' business in 2013, down from 20 percent in 2010. 9
Other studies also show that credit card debt may not be collectors' top priority. In 2015, 35.6 percent of collection agencies reported collecting credit card debt, less than the 64.4 percent of collection agencies that collect health care debt. 10
Like delinquency rates, collections rates vary by state. As of September 2013, Nevada had the highest percentage of people with debt in collections, while Minnesota had the lowest. 1
Source: Urban Institute July 2014
Source: Urban Institute July 2014
Those who lived in the Mountain region of the country -- Arizona, Colorado, Idaho, Montana, New Mexico, Nevada, Utah, and Wyoming -- had the highest average amount of debt in collections at $6,171 in September 2013. 1
When it comes to race, while there were no significant differences in 2012 in the number of times African-American and whites were late on credit card payments, African-Americans were more likely to have been called by bill collectors. Approximately 71 percent of African-American middle-income households had been called by bill collectors compared to 50 percent of white middle income households in 2012. 11
Not surprisingly, consumers aren't fans of collection calls. Calls about delinquent credit card accounts were the cause of 21 percent of complaints to the U.S. Consumer Financial Protection Bureau about debt collectors in 2014. 12
Sources
- The Urban Institute's 2014 report, "Delinquent Debt in America"
- Federal Reserve Bank of New York Quarterly Report on Household Debt and Credit, May 2015
- U.S. Bankruptcy Courts
- American Bankers Association, April 8, 2015
- TransUnion Industry Insights Report
- Federal Reserve Charge-Off and Delinquency Rates on Loans and Leases at Commercial Banks
- Student Monitor, Spring 2014
- ACA International: The Impact of Third-Party Debt Collection on the U.S. National and State Economies in 2013
- ACA International: 2013 Top Collection Markets Survey
- BillingTree's 2015 Collection Agency Operations and Technology Survey
- Demos and NAACP Report: The Challenge of Credit Card Debt for the African American Middle Class
- U.S. Consumer Financial Protection Bureau
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
