The ABA’s Consumer Credit Delinquency Bulletin found that the composite ratio, which tracks consumer delinquencies across eight closed-end installment loan categories, fell to 1.99 percent of all accounts in the fourth quarter, below the 15-year average of 2.39 percent. A delinquency is defined as a late payment that is at least 30 days overdue.
“Consumers continue to carefully manage their finances in an effort to get debt levels under control and build up a secure financial base,” ABA Chief Economist James Chessen said. “While this conservative approach to credit may slow economic growth in the short-term, it portends stronger, more consistent growth in the future. The sharp decline in delinquencies reinforces the notion that the economic recovery has become more self-sustaining and is on a path to increased growth.”
Delinquencies related to property improvement loans, home equity loans and home equity lines of credit declined in the fourth quarter for the first time since the end of 2011.
“While home-related delinquencies remain at elevated levels, even one quarter of declines could signal the start of a slow but steady improvement,” Chessen said. “Falling delinquencies are another indicator of the housing market’s nascent recovery.”
Chessen said that the decline is a positive sign but added that future challenges could hurt consumers financially.
“Make no mistake about it, a great deal of uncertainty still lingers over this economy,” Chessen said. “Furloughs from sequestration, falling disposable income and increased healthcare and regulatory costs for businesses could lead to challenges in the year ahead.”