Credit card delinquency rates continue dropping, and as a result the banks are back to making more credit available to customers.
The top 6 credit card issuers who control the bulk of the credit card portfolio in the United States report a 7% delinquency rate. By comparison, the historical average has been around 3%. (At the peak of the global recession, we had a rate of delinquency in the low to mid teens.) So we’re not all the way back to normal, but we’re definitely on the mend.
The excessive speculation that crippled our economy started in 1998 and continued in various forms for roughly 9 years. It was fueled with access to cheap and available money. A lot that would not have occurred otherwise did occur because people couldn’t restrain themselves and took on more obligation than they could handle.
Then lenders overreacted by shutting down home equity lines of credits (HELOCs,) reducing credit card lines to the outstanding balance or outright closing credit card accounts after they were paid in full.
Now the banks are taking a chill pill and there’s more lending taking place again. The logical question becomes, “Is that a good thing?”
I believe the recession means people will think before they buy, pay with cash and borrow only what they can afford to pay back. I think this so strongly, despite the cynics who think we’ll go back to our credit-fueled ways. It’s up to each one of us to resolve that we only buy what we can afford, and if we stick to that, we’ll be okay.
Editor’s Note: This segment originally aired in April 2011.