Happy days are here again - or are they?
Written by Geoff Williams
Posted On: May 17, 2011
More good news concerning credit cards and the economy as of late. There have been fewer late fees and fewer defaults on credit cards.
When it comes to the nation's fiscal health, credit cards are the canary in the coal mine. As you probably know, in the old days, coal miners literally used canaries--they'd bring them down into the coal mine, and if they stopped singing, the miners knew that poisonous gases were probably brewing, and that they'd better run for the exits and oxygen. The practice in the United States had pretty much ended by the 1970s, however.
Well, sure enough, if we look back now, before the recession truly got going, credit cards were being paid late. For instance, in August 2007, newspapers were reporting that credit card defaults were rising. From January to May 2007, credit card defaults were up 30 percent from the year before. In December 2007, the Great Recession technically began, although nobody would really know it for another year, when the Lehman Brothers filed for bankruptcy in September 2008 and suddenly nobody seemed to have any money.
Which is why this recent good news really might be good news, if it portends better things for the economy in the near future. According to reports from the Associated Press, the country's six biggest credit card companies, companies like American Express and Capital One, reported in April that late payments and defaults on card balances hit their lowest levels in the last several years. Only Bank of America was something of an exception. Their defaults rose from 8.18 percent in March to 8.25 percent in April, but they saw the lowest amount of late fees since October 2006.
More typical was Chase; their late payments fell from 3.08 percent last March to 2.86 percent and was the lowest they've reported since August 2007, and their defaults, going from 6.02 percent in March to 5.6 percent in April, were the lowest they had seen since December 2008.
Industry experts say that one reason defaults are going down as well as late fees is that the riskiest borrowers aren't able to get credit cards with large limits, and so that's meant fewer problems like late payments. But there seems to be a consensus among personal finance experts that these numbers also reflect Americans getting their debt under control, and that credit companies are simply issuing more cards. All in all, some good news out there, and with any luck, just as the 2007 numbers forecasted a gloomy economy, hopefully these numbers are predicting better times ahead.
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