Rising Delinquency Credit Card Payments is No Reason to Panic

News of rising delinquency rates for credit card payments is creating some doubt over the strength of the economy; however, some experts are warning consumers not to panic.

American Express Co, Bank of America, Capital One Financial Corp, Discover Financial Services, and JPMorgan Chase all reported a rise in late credit card payments in September. The only bank that managed to buck the trend was Citigroup, which reported a small decline in late payments.

Because of the renewed economic crisis analysts are watching credit card payments fairly closely. There is growing concern that if consumer start to feel the crunch the U.S. economy could fall back into a recession.

According to Business Week, which was one of the first agencies to report the rising payment problems, delinquencies are important indicators for future defaults. However, this is only the first month that banks have reported a rise in delinquency rates. Since February 2009, rates have actually been declining.

"Delinquency rates have actually been declining in the last few years so this small rise is probably an anomaly. Rates will probably start to level off in the next few months as consumers prepare for the holiday season,” said Charles Tran, founder of CreditDonkey, a credit card comparison website. “One month of data doesn’t make a trend. We want to see consumer habits after the holidays.”

Tran pointed out that more small businesses are turning to credit cards to help finance their business and they won’t jeopardize their future credit rating by not making their payments on time.

Some analysts have pointed out that even if defaults rates increase it will have a smaller impact on the financial sector. Since 2008 banks have actually been lowering their exposure to consumer defaults by choosing to give credit to more reliable clients.

On earlier this week six major financial institutions reported their credit card activity for September:
• Bank of America had the highest delinquency rate, which increased to 3.99% in September from 3.96%.
• Capital One’s rate increased to 3.65% from 3.43%,
• Discover’s rate increased to 2.5% from 2.49%,
• JPMorgan Chase’s rate increased to 2.53% from 2.48% and
• American Express, which had the lowest rate, saw an increase to 1.5% from 1.4%.

Citigroup, which was the only bank to report a decrease, saw its rate drop to 3.3% in September from 3.35% reported in August.

Follow @CreditDonkey or write to Neils at neils@creditdonkey.com

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