Category: Credit Cards

The rate at which consumers fell behind on their outstanding debt continued to decline in the second quarter of the year, leading to less credit risk nationwide.

Fewer consumers fell behind on their credit card debt and other lines of credit during the second quarter, leading the Credit Risk Index maintained by monitoring company TransUnion to fall 1.9 percent between the first and second quarters of the year. In addition, the new rating of 121.22 was also 5.04 percent lower than index during the same quarter last year.

"The lengthy, broad and steady decline in the Credit Risk Index, which reflects declines in consumer delinquency and debt levels, has placed the consumer credit market on a firmer footing," said Chet Wiermanski, global chief scientist at TransUnion. "This responsible use of credit has given some lenders confidence to ease lending standards and invest more in the acquisition of new credit customers."

In general, consumers have been more conscientious about paying their debts on time over the last year, leading many lenders to see steep declines in their rates of delinquency and default across most types of credit.

The concept of consumers loading their smartphones to make purchases that would normally require them to swipe a debit or credit card is gaining more traction, and companies are ramping up preparations to launch and secure these services.

In the next few months, the first two major digital wallet programs will be launched by some large companies, and competition for adoption among consumers and businesses alike is expected to be fierce, according to a report from the tech news site CNET. Visa's as-yet-unnamed mobile wallet program is expected to launch later this year, likely during the fall, while Google's planned Google Wallet payment system could be available to consumers by the end of the summer.

And while neither company will officially acknowledge that the other is in competition for adoption, it seems that the strategies they're using to launch their respective systems are very similar, the report said. Both programs will be open to any credit card, not just specifically branded ones, and both will likely try to drive more revenues by having targeted advertising and offers from merchants based on consumers' purchase histories. For example, Visa is already pilot testing a program with clothing giant the Gap to offer discounts to Visa cardholders through text messages.

However, Visa is also working to participate in a larger mobile payment system soon to be offered by the nation's largest mobile phone service providers as well, the report said. The ISIS program being offered by AT&T, T-Mobile and Verizon will include participation from Visa – the world's largest transaction processing network – as well as its payments competitors MasterCard, Discover and American Express.

ISIS will be tested in the first few months of 2012 in both Salt Lake City, Utah, and Austin, Texas, according to a report from Computerworld. In addition, it's expected that Visa will license its PayWave software to the program. This will likely help to advance the security measures for all transactions made using the mobile payment system and help prevent debt management issues involving identity theft.

Whichever company is the first to be truly successful in the mobile payment industry will likely profit considerably. Analyst estimates show that the mobile credit and debit card payment industry will likely be worth as much as $44 billion annually by the end of 2015, as adoption is expected to grow rapidly over the next few years.

In an effort to entice more companies into taking on credit card debt to better facilitate their transactions, some major lenders are now offering business credit cards that are associated with rewards programs and other perks.

More competition among credit card issuers to entice small business owners into opening accounts for their companies has led some major lenders to begin offering cards with cash back rewards programs, or other perks that can make the cards more affordable, according to a report from Entrepreneur. Since the beginning of July alone, three such new accounts have been offered American Express and Capital One Financial.

Two of these accounts offer straight cash back to cardholders, while the third, offered by Capital One, grants companies lower interest rates based on where their business is based, the report said.

However, these cards for small businesses may be problematic for some because the protections extended to consumer credit cards do not apply to those for companies, meaning the terms of an agreement may be changed without notice, which could make it more difficult to get out of debt.

Many college kids across the country now have credit cards of their own, which may make it easier for them to make day-to-day purchases, but can also saddle them with debt.

Now, a large and growing number of high schools and colleges nationwide are teaching teens responsible money and debt management techniques that will help them to better handle their finances as they move toward financial independence, according to a report from the Pottsville Republican Herald. These classes are designed to help them better understand the situations they get into when obtaining loans and potentially reduce debt they may already carry.

"After reading the statistics and seeing things like more people are dropping out of college because of credit card debt than student loan debt, I just thought we needed to do something," Kathy Loy, a business education teacher, told the newspaper.

Older consumers may have to look to other sources to find out how to get out of debt fast, but all would likely benefit from a sound financial education that can help them to better understand how quickly they can end up in debt.

Many college students are now growing wary of taking on credit card debt and opening new lines of credit, and as a consequence are beginning to shun these accounts.

Fewer college students are now using their credit cards and carrying a debt from one month to the next, according to a report from Tampa, Florida, television station WTFS. Recent statistics from the credit monitoring firm Experian showed that credit card balances for college-aged consumers rose just 0.4 percent in 2010, down considerably from the 13.3 percent growth rate observed three years prior.

In addition, many young adults may now be growing more cautious of these accounts because a larger number of college are teaching financial literacy courses as a requirement to help students stay debt free, the report said.

"Credit cards are a big part of that," University of South Florida financial aid services director Billie Jo Hamilton told the news station. "They tell students if you can wear it or eat it, don't put it on a credit card."

New federal laws have restricted the way in which credit card companies can market and grant credit cards to those under the age of 21.

Two of the nation's largest credit card lenders recently reported that the amount of credit card debt they had to write off as being uncollectable increased in July, reversing a trend seen for all major financial institutions since the start of the year.

Both Bank of America and Citi saw the rate at which they had to charge off accounts 90 days or more behind on payments as being uncollectable increase during the month of July, according to a report from Reuters as fewer consumers were successful getting out of debt. Citi saw charge offs rise to 6.64 percent of all accounts, up from 6.47 percent, while Bank of America suffered a more appreciable increase to 7.43 percent from 6.97 percent in June.

However, both lenders also saw the number of accounts that fell just 30 days or more behind decrease during the month, the report said. Citi's delinquency rate slipped to 3.39 percent from 3.56 percent, while Bank of America's tumbled to 4.05 percent from 4.16 percent.

Fluctuations in credit card lenders' delinquency rates are often reflected in the number of charge offs they deal with several months down the line.

The rate at which consumers paid off their seriously delinquent credit card debt improved during the month of July for one of the nation's largest credit card lenders, even as it saw more customers fall behind for the first time instead of working to reduce debt.

The latest regulatory filing from Capital One Financial revealed that the company saw the rate at which it charged off seriously delinquent accounts as being uncollectable slip in July, but its early-stage delinquencies increased, according to a report from Dow Jones Newswires. The lender's charge off rate – the total proportion of its balances that are so far behind on payments they must be written off as uncollectable – slipped considerably, to 3.77 percent from June's 4.41 percent.

However, the number of balances that fell 30 days or more delinquent rose during the month, though less appreciably, the report said. Capital One saw early-stage delinquencies rise to 3.37 percent in July from 3.33 percent the month prior.

Many experts have said that rising prices for necessities have made it more difficult for consumers to work their monthly budget, which may account for the rise in early delinquencies.

The amount of money spent on consumers' credit cards and the number of times they were used both increased considerably on a year-over-year basis during the month of July, but the rates at which they expanded slowed overall, according to the latest monthly statistics from First Data Corp.'s SpendTrend report. The amount spent increased 7.3 percent during July, but was lower than the 8.8 percent observed in June. Further, the number of transactions on these accounts during the month rose just 5.3 percent.

Both types of debit transactions – signature and PIN – also increased, the report said. Overall, the number of transactions on signature cards rose 7.8 percent, while those on PIN cards climbed 5.1 percent. In addition, the amount spent on these accounts jumped 7 percent and 7.5 percent, respectively.

Consumers are likely putting more of their purchases on credit cards once again because of the rising prices for necessities such as food and gasoline, making it more difficult to get out of debt.

Consumers who have large amounts of credit card debt may have been dismayed to hear that a downgrade in the U.S. credit rating would eventually lead to higher interest rates on consumer loans, and now that type of increase may be on the horizon.

Standard and Poor's recently announced that it would downgrade the credit rating for the U.S. to AA+ from AAA and now many experts believe others in the credit rating industry will follow suit, according to a report from TIME Magazine. Consequently, some experts predict that consumers who have variable-rate credit cards that are tied to the prime may end up seeing their APRs increase by as much as 2 or 3 percent in the next three to six months.

Such a change could have a major impact on consumers' holiday shopping plans, as they may be more likely to use those accounts to make a number of big-ticket purchases and then carry the balance from one month to the next. In addition, it may be a good idea to attempt to pay down as much of their existing balance as possible before the change takes effect to make debt management easier.

Some consumers in the state of California may have recently gotten an unpleasant surprise when they attempted to use their credit cards to make a purchase.

A number of small businesses throughout California were recently discovered to be charging consumers small fees for taking on credit card debt to make purchases, according to a report from Visalia television station KMPH. The state currently permits charges of this type to be tacked onto debit card purchases [only], and business owners also have the option of offering discounts for paying with cash.

While the fees were not substantial, they were still illegal, the report said. Often, the companies charged between 45 cents and $2 for accepting a credit card, and most of the time this was only applied to purchases of less than $10 or $15.

Many businesses have objected to these transaction fees charged by payment processing networks, saying they are too high and cut too heavily into profit margins. Often, this practice may lead to higher prices for all items, which can make it more difficult for consumers to get out of debt quickly.