Credit is Key to Managing Mortgage, Car and Installment Loans

Friday, December 25th, 2009 By

Delinquencies on credit card payments are falling

Installment loans are still popular, but surveys are showing that Americans are getting better at managing their credit. TransUnion made a prediction recently that credit card delinquencies should continue to fall throughout 2010, but at a much slower rate. Their studies showed that people want to pay off credit and realize how important a good credit rating is, but the unemployment rate is going to hamper their efforts. Still, TransUnion is estimating that the delinquencies on MasterCards and Visas should both drop to 1.04% by the end of the year.

How the numbers are calculated

TransUnion uses a calculation to predict how people will handle their future credit and it involves former payment habits of customers. The common belief is that the past three months’ payment habits are indicative of how a borrower will deal with credit in the future. For example, the chances of a consumer catching up on payments after just missed deadline is 86%, however if they miss two payment deadlines, that percentage drops to 62%. After three missed payment dates, the percentage is under 20%.

Numbers like this give analysts the ability to project what the future of lending will hold. Though TransUnion is making predictions that numbers of non-delinquent payments are on the rise, that rise is said to be just a fraction of how sharply it declined in past months. Full recovery is still a long way off.

Where the lending industry is headed

Director of consulting and strategy at TransUnion, Ezra Becker said that “delinquencies lag behind other statistics, like the jobless rate. Until more people are back at work, there will not be any dramatic improvements in payments being made on time.” The number of new unemployment claims has been lower in recent months than the year-long norm and that’s good news for economists. They are studying the economy looking for nascent signs of relief. They are also trying to forecast the future by combining research on mortgage, car and installment loans. Combining all forms of lending is enabling them to formulate what to expect in coming months.

One of the most closely watched states is Arizona. In the recession, Arizona was one of the hardest-hit and its turnaround is much anticipated. It is the only state where industry analysts are predicting credit card delinquencies will still rise throughout the beginning of 2010. Becker added, “Credit card reforms that take effect in February will have a material impact on the credit card industry next year.” He believes that lenders will be tight-fisted still, but will come up with new lending options for those without premiere credit histories. “The industry will adapt to new rules and a customer base with new credit requirements. Lenders will be forced to be more innovative in the products that they offer and how they manage their customers,” he added.

Consumers need to be smart

Though there are fresh products coming to the market, it’s important for consumers to be as vigilant as ever regarding their credit. New reforms are slated to aid people with all types of credit, but that does not mean that the lending process will be any simpler. For anyone needing credit, mortgage loans, car loans, or installment loans, it will be very important to have relatively good credit. Becker added, “People with very low credit scores may have to wait longer for the door of credit to open for them, but they still need to be fixing their credit now.”

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