Missed Credit Card Payments – On the Rise

Credit bureau Transunion, recently presented a report showing that consumers are missing more credit card payments.

Nearly 3% of balances on credit card debt are 90 days of more past due.   In 2014, that a number was 2.2@, and in 2013, 1.5%.

Adding new credit into the mix, and the average delinquency rate is the highest it has been in 4 years, at 1.53%.

The culprit appears to be one of the same that lead to the recent economic collapse – subprime lending.  Subprime lending is the issuance of credit to individuals that probably don’t have the ability to pay the debt back.  As credit eased, along with the recession rolling back, credit was loosened to those that were locked out of the market due to poor credit scores.   In 2015, the wall Street Journal estimates 20 million cards were issued in the subprime market alone, up 20% from 2014 and 56& from 2013.

This of course begs the question – if the subprime market was responsible for the last major collapse (at least to some extent)  why is it again on the rise?  THe answer lies in profitability and fees.    Subprime borrowers tend to be late more often than prime borrowers.  Even factoring in defaults,  the fees generated make them a profitable market.  Specifically:

• Late payments
• Increasing the credit limit
• Maintenance fees (either monthly or annually)
• Over the limit fees
• Processing fees

As an economy recovers, the reality is those individuals that suffered bad credit as a result of the recession, must get credit in the subprime market in order to have their credit scores recover.  You need credit to have credit.  There are untold numbers of people with delinquencies, defaults, and foreclosures on their credit record that have to regain credit worthiness, and their only port in the storm are expensive subprime lenders.  THe associated fees from delinquency may well send them back into a financial tailspin.  It is a cycle, and a vicious one.

One of our mainstay businesses at Marcadis Singer, PA, is the collection of credit card debt.  Our experience tends to support this national trend as we see more and more people that were digging out of the morass of the recession, desperate to improve their credit situation, and adopting too much subprime credit too soon.  For those subprime borrowers, we would like to suggest, patience.  Pick up one maybe two new cards.   Use them for a year of two, and slowly rebuild your credit story.  Do not rush into the credit market with both feet first, only to find yourself in the same position the industry was in not even 10 short years ago.