Banks and card companies have raised fees and interest rates in recent months to counter the expected losses from a new law and the unstable job markets. Delinquencies also increased substantially a few months ago, fueled by the rising unemployment rate. With recent figures showing some improvement in the jobless rate, some economists have expressed optimism that the U.S. economy may well be on the road to recovery.
Delinquencies are credit debts that have not been settled by a cardholder. The credit industry typically allows a window of 30 days before considering a consumer as delinquent. Analysts often cite the close link of delinquencies with the number of unemployed Americans. In fact, several months ago during the height of the recession, specialists predicted delinquencies to increase considerably because of the grim unemployment outlook.
Today, however, credit analysts are saying that the number of delinquencies can actually fall in the next few months. Experts have noticed improvements in May and June, fueling speculation that delinquency rates will eventually decline. The changes have also helped boost the stocks of several major financial institutions.
According to Chris Brendler, an industry analyst, the soon to be released July report is likely to show improvements in delinquencies. He says that early-stage delinquencies have been in decline for the past months and are expected to reduce late-stage delinquencies. The prediction may come as a pleasant development especially for cardholders who are behind on card payments.
Brendler cautions though, that investors will likely be more focused on early-stage delinquencies. This presents a problem since industry trends are showing these particular delinquencies to actually rise. However, analysts are still hopeful that the increase in delinquencies will be minimal and not affect the overall improvement of the credit industry.
Investors will soon pay closer attention to the long-term status of their investments, Brendler explains. This new focus will eventually lead to a loss of interest in early-stage delinquencies and renew interest in late-stage delinquencies. The analyst contends that when this happens, stocks can fall once more.
For the meantime, however, the stocks of card companies are expected to continue their rally because of the recent positive developments to card delinquencies. Brendler also says that while the July report can help boost optimism among the players in the credit industry, companies have to prepare for potentially tougher months ahead. Despite this, he says, the growing optimism in the credit industry is unlikely to be dampened so easily.