Category: Credit Cards

Consumers worried about how their credit rating might affect the costs they face for carrying credit card debt might soon be able to find a bit of relief.

The federal Consumer Financial Protection Bureau will begin overseeing the credit reporting industry on September 30, and therefore help to ensure that Americans only have accurate information listed on their profiles, according to a report from the agency. Credit reports are used to create consumers’ credit scores, which in turn are used to determine not only eligibility for loans, but also the terms of those agreements.

In all, there are about 400 companies nationwide that participate in some sort of credit scoring, but only about 30 of the “larger participants” will be regulated, the report said. Those 30 companies alone make up 94 percent of all receipts in the industry, and the three largest issue more than 3 billion credit reports annually for some 200 million Americans.

Erroneous markings on a credit report can lead to significant problems for borrowers and in some cases prompt them to seek out debt relief options.

Accounts that grant consumers benefits for taking on credit card debt are growing more popular with borrowers in nearly all income groups.

While many experts have noted that rewards credit cards are largely for more affluent consumers, a large number of those in lower income ranges are now using these accounts regularly as well, according to a report from Phoenix Marketing International. In all, 74 percent of people with incomes between $20,000 and $29,900 last year had rewards cards, and used them to spend for 72 percent of their credit card purchase value.

Further, only 26 percent of those in this demographic paid an annual fee on their rewards card, the report said. However, that number was higher than the 23 percent of people in all demographics who paid such a fee for a non-rewards account.

Because of fees and higher interest rates, rewards credit card accounts can end up costing borrowers more than those without benefits, and may lead borrowers to end up needing to seek debt relief. As such, these cards should be handled cautiously.

As the economy continues to improve, many of the nation’s financial risk experts believe lenders will keep broadening credit standards while delinquencies remain in decline.

Bank risk professionals now believe that lenders will keep allowing subprime borrowers to take on credit card debt and have more access to auto loans over the next six months, according to a survey by the Professional Risk Managers’ International Association for the credit scoring company FICO. In all, 50 percent expect subprime auto lending to expand most significantly, while 38 percent believe credit cards will see the largest gain. Only 12 percent felt the same about residential mortgage lending.

Further, experts also predicted that instances of delinquency for most account types would decline in the second half of the year, the report said. The majority expected dips in late payments on auto loans (77 percent), mortgages (73 percent), small business loans (72 percent) and credit cards (69 percent).

Those who have run into financial trouble and ended up seeking some sort of debt relief option may want to be cautious about borrowing in the future, and approach any new accounts they open responsibly.

The rate at which consumers fall behind on their credit card debt payments continues to drop, as do consumers’ balances on those cards.

New data from the nation’s six largest credit card lenders shows that delinquency rates dropped once again in the second quarter of the year and could continue to do so for some time more, according to a report from Reuters. Barclays Capital found that the delinquency rate – accounts 30 days or more behind on payments – for these institutions stood at just 2.35 percent of all balances, down from more than 6 percent at the start of 2009, when the recession was still ongoing.

This trend has also allowed consumers to slash their credit card balances considerably, the report said. Data from the credit monitoring bureau Equifax shows that borrowers have cut their obligations by more than $170.4 billion since October 2008, a decline of 22.7 percent.

Consumers who saw their credit standings take a tumble during the recent recession have largely been able to repair them by seeking debt relief options and generally being more conscientious in attempting to clear their balances.

Americans have been able to be far more conscientious about making their bill payments on time and in full in recent months, and that is particularly true when it comes to dealing with their outstanding credit card debt.

Consumer delinquencies on credit card bills dipped once again in the first three months of the year, and now stand at lows not seen in more than a decade, according to the latest Consumer Credit Delinquency Bulletin issued quarterly by the American Bankers Association. In all, consumer credit card delinquency slipped to just 3.08 percent of all outstanding balances, down from 3.17 percent at the end of last year.

This was the lowest level seen since 2001, and now stands at well below the average seen over the last 15 years of 3.93 percent, the report said. However, that average was likely inflated considerably by the high rates of delinquency and default observed during and following the recession.

The recent economic downturn led many Americans to fall behind on all types of loans and prompted many to seek some sort of debt relief. However, many are now finding it easier to handle their accounts as the economy improves.

Many companies are working on ways to allow consumers to begin dealing with their credit card debt using their mobile phones instead of swiping their cards in the traditional way, but there may be some way to go when it comes to standardizing this type of purchase.

Mobile wallet purchasing platforms are expected to be the next big thing in the credit card industry, but because there are so many companies developing their own versions of the technology, it may be some time before a uniform system exists, according to a report from San Francisco, California, television station KGO. For this reason, there are factions forming for two of the largest competitors in the field, and each will likely have its own stable of partner retailers.

“You have Google proposing, ‘This is how we’d like to do it,’” Derek Kerton, the principal analyst for the Kerton Group and chair of the Telecom Council Silicon Valley, told the news station. “But you have companies like the carriers in the United States, forming an association called ISIS, saying, ‘No, no, don’t work with Google, work with ISIS. This is the payment consortium that’s going to bring this all together.’”

However, both will likely try to incentivize business participation in their programs by giving the companies a large amount of information about the people using mobile wallets, the report said. For instance, users might be able to link their store loyalty, credit card rewards, social networking and local couponing accounts to their mobile wallets, which would give retailers more detailed information about customer spending, saving and sharing habits. That, in turn, could be used to create more direct marketing.

Studies have shown that consumers who use swipeless credit card purchasing systems are likely to spend more money than they would with a regular card, and considerably more than if they used cash. For this reason, it may be a good idea for those who have sought debt relief in the past to carefully consider the benefits of such a program, and, if possible, try to restrict the use of these accounts to make everyday purchases. Using a credit card often can lead to balances that quickly grow quite sizable and can therefore be difficult to get back under control again.

Consumers who want more power to deal with credit card debt were likely able to find it last year as a result of slackening underwriting standards for the nation’s largest lenders.

Last year, credit qualifications broadened for 35 percent of the 20 major financial institutions that issued credit cards, according to the latest Annual Survey of Credit Underwriting Practices issued by the U.S. Office of the Comptroller of the Currency. Another 50 percent said they held their standards steady, and only 15 percent actually tightened them.

It was generally the improving economic conditions seen nationwide that prompted lenders to once again begin broadening qualifications for credit cads, the report said.

“Examiners attributed the easing of standards to changes in economic outlook, product performance, competitive environment, risk appetite, and market strategy,” the report said. “The primary methods used for easing credit underwriting standards were changes in pricing and fees, scorecard cutoffs, and debt-to-income ratios.”

Consumers seeking debt relief have generally been more conscientious about paying down their outstanding balances since the end of the recession, leading to all-time record lows in instances of both delinquency and default.

Consumers who may have had their credit card debt written off as uncollectable in the past might now be able to once again begin borrowing.

Data suggests that the extension of new lines of credit, and particularly creditcards, to consumers with subprime credit card ratings has expanded 41 percent in the last year, according to a report from MarketWatch. This includes 24 percent of all new credit card accounts issued last year and this year being granted to borrowers with credit scores below 700, up from 22 percent in 2010.

The reason for this is that the risk of default for credit card accounts has fallen considerably in the last three years, the report said. While default risk stood at 7 percent in 2009, immediately following the recession, it is now just 3 percent. However, that rate is still notably elevated from the 1 percent default risk observed in 2005, prior to the onset of the recession.

Consumers who have defaulted on their credit card accounts may need to seek some form of debt relief to help avoid some of the costly fallout that may occur.

With millions still struggling with large outstanding balances, consumers who are trying to reduce their credit card debt should do so responsibly by exploring all their available options.

Many consumers are now attempting to get out from under their large credit card balances, and experts generally recommend that they do so as responsibly as possible by first reviewing all aspects of their finances to ensure that they are making wise decisions which they can afford, according to a report from USA Today. For one thing, it may be helpful to first try to get a lower credit card rate, either by calling their lender and negotiating for one, or by obtaining a new balance transfer accounts that come with 0 percent APRs for the first several months the account is open.

Those who cannot afford to make larger payments to their accounts may also want to consider earning additional income or scaling back their contributions to retirement savings until the balance is paid off in full, the report said.

Borrowers who are in especially tough situations may want to consider the various debt relief options available to them.

Delinquent and defaulted credit card debt has been on the decline for some time now, and new data suggests that instances of both are tied very closely to unemployment rates.

As the effects of the recession slip away and employers continue to expand their hiring practices, it’s expected that consumers will make more on-time payments into their various credit card debts, according to new data from the Mercator Advisory Group. When the recession began, instances of both charge offs and early-stage delinquency spiked at the same times unemployment did, and since it ended, both have moved slowly downward.

Now, both of these financial concerns are standing at or near all-time lows for all of the nation’s largest lenders, the report said. However, some experts note that even if unemployment continues to fall from its somewhat elevated state, there must be a logical bottoming-out in charge offs and delinquencies.

This is particularly true because improving credit conditions have allowed lenders to expand issuing to subprime borrowers. In many cases, these consumers are those who ran into financial trouble in the past and ended up having to seek some form of debt relief.