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Consumers manage credit bills better

Late payments fall in fourth quarter

The US bank card delinquency rate was 1.21 percent in the fourth quarter, up from 1.35 percent in the same quarter of 2007. The US bank card delinquency rate was 1.21 percent in the fourth quarter, up from 1.35 percent in the same quarter of 2007. (Joe Raedle/ Getty Images/ File 2007)
Associated Press / March 10, 2009
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NEW YORK - Americans are managing their credit better as the recession deepens - possibly a sign the new era of responsibility that President Obama has been talking about is taking shape.

The number of people three months behind on bank card payments fell 11 percent in the fourth quarter of 2008 from a year ago, while they added less than 2 percent to their balances during the holiday shopping season, according to a consumer credit tracking agency.

The percentage of consumers behind on payments by 90 days or more for their bank cards - MasterCard, Visa, American Express, and Discover - fell to 1.21 percent in the fourth quarter, from 1.36 percent a year ago.

More on-time payments came even in the face of worsening job losses, the continuing foreclosure crisis, and tighter credit, according to TransUnion.

Another sign of consumer responsibility: Shoppers didn't spend as much on gifts they couldn't afford as in holidays past. Average borrower debt - the average of all the credit cards someone holds - edged up 1.96 percent, to $5,729 from $5,619 year over year.

The numbers, while positive for individuals who are running up less debt and potentially paying fewer late fees on their credit cards, reflect difficult economic issues, like the sharp decline in retail sales and the tight credit market. Ezra Becker of TransUnion's financial services group said the numbers show consumers recognize that they have to pay their bills on time, and use their cards less.

However, it also shows a bit of the fear inherent in the idea of losing credit cards, which he said have become "the primary instrument for purchasing power." Consumers are paying their credit cards even while they're letting their auto loans and mortgages slide, a reverse of conventional behavior in years past, when secured loans would be paid first because people were afraid of losing their cars and homes.

And the credit crunch is also playing a part in the changing rates. Becker noted that credit card issuers have been trimming credit limits, closing accounts, increasing interest rates, and getting more aggressive with their collection practices.

Delinquency did rise substantially in the fourth quarter from the third quarter, but Becker said it is normal to see an uptick then because people are stretched during the holidays.

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