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NY Fed: Credit card balances reach new low

Average credit scores bump up, too, as consumers pay off debt on their own

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Credit card balances fell by a sharp $19 billion in the first three months of 2013, ending three quarters of increases and setting a new low for the post-financial crisis era, according to the New York Federal Reserve Bank.

Delinquencies also reached a post-crisis low, with 10.21 percent of credit card balances in the 90-plus-days-late category, down from 10.57 percent in the previous quarter. It was the best showing since the fourth quarter of 2008, when delinquencies were 10.18 percent.

"This is clearly an indication consumers are being cautious about taking on new debt," said Keith Leggett, senior economist at the American Bankers Association. "We continue to see a change in consumer behavior with regard to credit cards."

The cut in card debt contributed to an overall 1 percent reduction in household obligations since the end of 2012, largely the result of lower debt on mortgages and home equity loans.

The Fed's Household Debt and Credit Report, drawn from Equifax credit report data, did not indicate how much of the reduction in card balances is due to write-offs of unpaid loans by banks. But the figures suggested that much of the reduction was the result of consumers paying down their card balances on their own.

While balances fell $19 billion to $660 billion, available credit on cards actually rose by $20 billion in the first quarter, the Fed report said. The number of card accounts was essentially flat at 383 million.

Economic measuring stick
The state of household budgets is viewed as a measure of health in the consumer economy. Overall household debt, including mortgages, auto loans, student loans as well as credit cards, fell by $110 billion. The overall household debt burden of $11.23 trillion is 11 percent lower than its peak in the third quarter of 2008.

"After a temporary deceleration in the previous quarter, the data suggest that household deleveraging has resumed its previous trajectory," said Wilbert van der Klaauw, senior vice president and economist at the New York Fed, in a statement accompanying the report.

In the final three months of 2012, household debt increased slightly for the first time since 2008, which Fed economists saw as sign of healing in consumer debt markets. Credit card debt contributed to the uptick in that quarter, growing by $5 billion.

In the short run, household parsimony is a drag on consumer spending, keeping the economic recovery from being as robust as it might be, Leggett said. But consumers' frugality now should lay the foundation for stronger growth down the road by building a healthier basis on which to increase borrowing and spending.

"Once you right-size your balance sheet, you should be better able to take on debt in the future," Leggett said.

Average credit score rises
Signs of consumers' financial health were little changed. The average credit score gained 1 point to 696 in the first quarter, maintaining its pattern of hovering tightly around the 695 level for the past two years. And the fraction of consumers with debts in collection was about the same at 14.64 percent, compared to a pre-crisis level of 12.9 percent in mid-2008. However, the average amount in collection did fall about $66 in the quarter, reaching $1,433.

Student loans continued their upward march in the first quarter, gaining $20 billion. An earlier New York Fed study indicated that the growth in student loans is absorbing resources that might otherwise be funneled into other spending, including auto loans and mortgages. However, delinquencies of student loans were down in the first quarter, part of an across-the-board improvement.

The overall 90-day delinquency rate on household debt fell to 6.07 percent from 6.31 percent at the end of last year. That's down from a peak of 8.71 percent in 2010.

See related: Fed: Banks modestly lower barriers to credit cards, Fed study: Recession really changed our spending habits

Published: May 14, 2013


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