News & Resources

Credit cards and the consumer debt war

Dec 27, 2012 Walt Wojciechowski

Credit cards and the consumer debt war

Americans may be turning to credit cards more often due to a lack of available cash, but a recent Washington Post article highlights the fact that delinquent payments have decreased over the past three years. This may reflect the increased importance residents of the United States are putting on consumer credit reports for home and auto loans, employment screening and apartment rentals. At the same time, the demand for credit is increasing, and some lenders may be implementing stricter underwriting methods and decreasing approval rates and lines of credit.

The average credit card debt held by consumers broken up by state ranges from $3,595 in North Dakota, to $5,572 in Alaska, according to The Huffington Post. This shows that Americans still have outstanding debts, and although delinquent payments may be decreasing, debt collectors are likely to still be busy tracking down late accounts and those sold off to third parties for recovery.

Credit debt

Six U.S.. states - Alaska, New Jersey, Connecticut, Colorado, Maryland and Delaware - have an average consumer credit card debt over $5,000. If individuals have reached, or closed in on their spending limit, it may cause negative reporting in consumer credit data, and may prevent big institutions from granting new credit. Those with poor credit that cannot qualify for new lines may turn to short term lenders or creditors that accept alternative credit scores.

Credit reports
It may be the case, according to The Washington Post, that credit card balances may be given additional emphasis by the big three credit reporters -Experian, Trans Union and Equifax - when determining credit scores. This means that those who are maxed out on cards might be maxed out on credit altogether.

Because individuals often turn to credit cards when excess cash is not available to cover household needs or emergencies like auto repairs, repayment could be difficult for some. Although the delinquency rate is slowly decreasing, consumers may be shuffling monthly payments between cards, which might show a higher debt than consumers are able to pay. Debt recovery firms should consider this data when projecting budgets for the coming year, and establish strategies for how to effectively manage these collections. Effective recovery practices involving data management of new accounts can help agents best recover delinquent credit card funds.