American Consumer Behavior Breaking Credit Card Industry's Cyclical Trends

The credit card industry has traditionally held on to the expectation that a credit card trend, especially among credit card holders is cyclical. Meaning, credit card holders often behave predictably and their behavior varies depending on the season. Credit card companies have relied on this cyclical behavior, and in fact, these cyclical changes often form the metric by which companies measure their liquidity inflow for a given year. This year, however, American consumers are breaking this trend and exhibiting unexpected and surprising behavior.

It is traditionally expected of consumers to slow down payments on their credit cards during the summer season. If this held true during less stressful times, it should have even been truer now when the economy is in a recession. However, consumers broke this trend this year instead. According to TransUnion, one of the major credit reporting agencies, during summer, the number of card holders who were making late payments on their bank-issued credit cards, such as Visa and MasterCard, dropped to 1.1%. This covers the period from July to September. The numbers and figures show a drop of 1.17% compared to figures during a previous quarter.

Although it may seem that this data points towards a recovering economy, there are still other factors that may be affecting this whole trend break. Considering a high unemployment rate and a housing crisis, it would be a mistake to assume that this isn't so. For instance, the change could be due to high risk borrowers losing access to credit lines which would slow down their credit spending, and in turn lower risky debts. A slowdown in consumer spending would be a huge factor as well. Lesser spending would logically lead to fewer delinquent credit card holders.

Historically, delinquency rates go up during the third quarter, fueled by higher consumer spending during summer vacation and back to school shopping period. This year, however, delinquency rates actually went down during that period. It seems that consumers this year are focusing more on getting rid of their debts and propping up their credit standing. The trend may also be fueled by the preference of consumers to use cash payments instead of credit.

Recessions have been known to change the spending patterns of consumers. Often, the degree of change that consumers go through relies on the severity of a recession. The latest recession that the country has faced has been quite severe indeed and consumer spending habits have apparently changed. The coming holidays will provide clues as to how much it has changed.

Bryant Park

Bryant Park is a financial consultant for one of the companies listed on Wall Street. He writes on a variety of topics ranging from credit cards to different loans that can be availed by consumers. He holds a bachelor degree in Financial Services from Dartmouth College.