US Retail Credit Card ABS Continues to Improve

US retail credit card asset-backed securities (ABS) continue to improve. This is according to the latest Credit Card Index statistics from Fitch Ratings. This is all largely due to increasingly positive payment patterns by consumers.

Credit card defaults in June of 2011 saw the second largest monthly decline since 2005, which is when the Bankruptcy Reform Act was passed. Also, improvements were made in late-stage delinquencies and prime card monthly payment rates (MPR). In fact, late-stage delinquencies are now near a 4 year low. Additionally, early-stage delinquencies continued to decline during this period. Current delinquencies are now approximately 28 percent lower than the historical average.

According to Michael Dean, Fitch’s Managing Director, consumers are spending less and paying down their debt more. Mr. Dean stated, “ Consumers are curtailing spending and charging less while at the same time cleaning up their household balance sheets.” According to Mr. Dean, this amounts to a plus for retail card ABS performance, citing that it has improved rapidly and shows no signs of changing direction.

It is clear that the shaky economy has led consumers to rethink their credit card usage and payments. As ABS performance indicates, many are using credit cards more responsibly than in previous years. A combination of reduced credit card spending and increased emphasis on paying off balances should continue the positive ABS trend and help keep the balance sheets of the average consumer in check. Overall, defaults are decreasing, delinquencies are decreasing, and consumers are paying off their credit card balances quicker. This all works out to be a good deal for the consumer, as nobody really wants a pile of credit card debt – especially during tough economic times.

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