Credit Card Debt
The number of Americans late on their credit card payments climbed slightly in the third quarter, to 1.36 percent, even as the delinquency rate fell, according to new figures from reporting agency TransUnion.
“The credit card delinquency rate typically rises in the third quarter, partly because of back-to-school spending,” explained TransUnion’s Toni Guitart.
Such a spike in that rate or in the rate of credit card debt, at this time in the year, is hardly unprecedented. Back-to-school spending does play a role in the third quarter, and holiday shopping in the fourth quarter has an even more amplified effect.
In November 2012, Americans added $5.6 billion to the $798 billion credit card debt total. At the time, CardRatings.com’s Curtis Arnold told Time Magazine that it’s not uncommon to see these spikes in debt close to the holidays. Credit card companies know that consumers can be seduced by temporary offers of 0 percent APR on some transactions, so they reel them in. They sign up for the cards, pile up debt in the short-term and then continue using them into the new year.
The problem for card users is that they can “ride those offers for only so long,” according to Arnold. Eventually, rates will increase and borrowers could be saddled with uncontrollable debt.
As borrowers continue to rack up debt without saving a sufficient amount, their ability to acquire other lines of credit will be curtailed. As lenders turn to more rigorous risk assessment tools to evaluate borrowers, excessive credit card debt could be the one element that causes a particular applicant to be deemed too high-risk to be extended credit.