The level of delinquencies in North America have been a problem since the economic downturn, and this could continue to play a role in 2014.
More than one-third of bank risk professionals noted that auto loan delinquencies could be on the rise during the first six months of the year, according to a report from FICO. Another 28 percent noted that credit card delinquencies should also rise during that period. These figures were the highest since the final three months of 2012.
“While the delinquency predictions in our survey aren’t alarming, lenders will be keeping a close eye on these trends,” said Dr. Andrew Jennings, chief analytics officer at FICO and head of FICO Labs. “Banks are walking a fine line – trying to grow their lending portfolios without taking excessive risks. But given that credit card delinquencies are near their lowest level since the Fed began tracking them in the 1990s, a small uptick is to be expected and shouldn’t spook lenders. A slight increase in delinquencies is normal when availability of credit expands and borrowing increases.”
Re-leveraging also may be a factor during the first two quarters of the year. Nearly 60 percent of those polled noted that credit card balances should rise this year, the report explained. Less than 10 percent of those polled felt the figure would fall.
Credit handed out to consumers also may be on the rise this year, as 44 percent of respondents felt this way, the report showed. Just 14 percent explained that this level will decline.
Credit quality may improve this year
Further progress in credit score repair and improvement may happen in the coming months, and much of it may already be underway.
The median credit score for FICO was 711, according to a separate article on the FICO Banking Analytics Blog. This remained the same in the past few years, but other scores are beginning to pick up steam. Just 24 percent of Americans had a score of lower than 600 in October 2013, slightly lower than the 24.4 percent who had a score in that area one year earlier. Right before the recession, the figure was approximately 23.8 percent.
With the slight gains in credit scores from many people, this may end up changing during the next few months, due to the aforementioned increase in credit card balances.