Fed: Credit card balances dipped by $3 billion in December

Credit card balances edged down in December, even as consumers engaged in holiday shopping, as uncertainty about a second round of stimulus checks extended to the latter part of the month.

Consumer revolving debt – which is mostly based on credit card balances – was down $3 billion on a seasonally adjusted basis in December to $975.9 billion, according to the Fed’s G. 19 consumer credit report released Feb. 5.

In December, credit card balances were off 3.6% on an annualized basis, following November’s revised 0.8% dip and October’s 6.7% drop, which came on the heels of September’s 3.2% annualized gain.

The Fed also reported that student loan debt outstanding for the fourth quarter rose to $1.707 trillion, from the third quarter’s $1.704 trillion. And auto loan debt outstanding gained to $1.228 trillion, from the third quarter’s $1.219 trillion.

Total consumer debt outstanding – which includes student loans and auto loans, as well as revolving debt – continued to grow and rose $9.7 billion to $4.184 trillion in December, a 2.8% annualized gain.

For the entire year, credit card balances were down 11.2%.

Card balances had been growing before the coronavirus impacted consumer spending and bank lending in 2020. They dipped below the $1 trillion mark last May, for the first time since September 2017.

See related: 51% of consumers accrued more debt during the pandemic

ABA sees brighter days ahead for credit availability

The American Bankers Association reports, based on input provided by chief economists of large North American banks to its credit conditions index for the first quarter of 2021, that credit conditions (both credit quality and availability) have rebounded from their lows of last summer.

However, all three components of the index (the headline credit index, the consumer credit index and the business credit index) remain below 50, which is not a robust index reading. It indicates that while bank economists expect credit conditions to remain “soft” in the coming six months, they are less pessimistic than they were in September 2020 when the ABA  conducted its last credit conditions survey.

The consumer credit index component of the survey gained to 45.3, its highest level since mid-2019. Economists are optimistic about both the availability and quality of consumer credit compared to September. They expect credit to be more available to consumers in the coming six months, although a small majority expects credit quality to decline.

“Although credit quality is still expected to worsen over the first half of the year for both consumers and businesses, the overall outlook for credit markets has improved significantly since the summer and fall,” said Rob Strand, ABA senior economist. “As widespread inoculations against the virus and new fiscal stimulus measures help heal the economy, banks will continue to work closely with policymakers, consumers and businesses to ensure that affordable credit remains available and recovery strengthens.”

Fed reports easing of credit card lending standards in fourth quarter

According to the Fed’s senior loan officer opinion survey on bank lending practices for January 2021 (which is based on input related to the fourth quarter of 2020), a “moderate net share of banks” reported that they had eased up on credit card loans.

As a result, a “modest net share of banks” also hiked up their credit limits on credit card accounts. And a “moderate net share of banks” reported that there was higher demand for credit card loans during the fourth quarter.

As for the outlook, a “significant net share of banks” is expected to ease up on their standards for credit card loans. They are doing so in anticipation of an improvement in their loan portfolios’ credit quality, as well as a hike in their tolerance for risk.

Also, the New York Fed’s survey of consumer expectations for December 2020 finds that consumers are less concerned about the possibility of missing a minimum debt payment in the coming three months. The average perceived probability of this occurrence dipped to 10.5% for December, from November’s 10.9%.

See related: What happens when you miss a credit card payment?

Jobs edge up in January

The New York Fed survey also finds that on average fewer consumers expect the unemployment rate to be higher a year from now, with this probability declining to 38.9%, from November’s 40.1%.

While the average perceived probability of losing a job in the coming 12 months rose up a bit to 15% (mainly on account of those without a college degree), respondents were also more likely to leave their job voluntarily. However, they were less optimistic about landing a new job if they lost their current ones.

The U.S employment situation was about stable in January, with the economy adding 49,000 jobs, the government reported Feb. 5. “The labor market continued to reflect the impact of the coronavirus pandemic and efforts to contain it,” according to the Department of Labor’s employment report media release. The unemployment rate dipped 0.4 percentage points to 6.3% and average hourly earnings were up $0.06 to $29.96. Also, the job numbers for both November and December were revised down, with November down 77,000 jobs (to 264,000) and December losing an additional 87,000 jobs (to minus 227,000).

In his daily email commentary, Ian Shepherdson, chief economist at Pantheon Macroeconomics, noted, “Coupled with the -159K net revision, this is a significantly softer report than expected, at least in terms of payrolls. Bulls will cite the large and unexpected drop in the unemployment rate, but two-third(s) of the decline was due to a 405K drop in the size of the labor force – a sign of discouragement – while household employment rose 201K.”

He added that “the labor market was frozen at the start of the year, and is completely dependent on the pace of reopening, which in turn is contingent on the speed and sustainability of the fall in hospitalizations.”

Source: creditcards.com

Why is a disputed collection account still on my credit report?

Reader Alesia writes, “I disputed a collection account from 2016 on my credit report with all three bureaus. Two of them deleted the account. However, Experian did not and the creditor has updated the date of collection to November 2020. Does this mean it will now stay on my report until 2027? And why did the two delete it and not the other? I still dispute the account. What can be done in these situations?”

When you don’t pay your credit card bill or loan payment on time, the creditor eventually declares it delinquent. And typically six months after the time you first stopped paying your dues, it will either write it off or send it to collections. If it’s the latter course of action, the delinquent account becomes a collection account.

Check out all the answers from our credit card experts.

Ask Poonkulali a question.

Each credit bureau has its own processes

Alesia, the three credit bureaus – Equifax, Experian and TransUnion – are all independent of each other and have their own processes. That’s why you rightly disputed the collection account with all three of them individually.

Equifax, one of the three credit bureaus, advises in online commentary, “It’s important to remember that disputing information with one credit bureau may not impact information on credit reports from the other two bureaus. Also, dispute procedures may not be the same at all bureaus, so be sure to follow the procedure with the bureau where you’re filing a dispute.”

When you file a dispute with a credit bureau, the bureau will contact the creditor and ask it to look into the information and check its records. The creditor then has a 30-day time frame to respond to the credit bureau with accurate information. If the creditor does not respond by this deadline, the credit bureau can then act on any information the consumer has provided to update the account or remove it.

It may be that the creditor did not get back to Experian in time with the relevant information, and the credit bureau did not make any changes on your account. Or it may not have responded to all three of them in time, and each then acted on its own information (each has its own input on your credit history) and processes in dealing with the account. It could also be that the lender did not provide the same input to all three credit bureaus, for whatever reason.

Also note that the coronavirus pandemic has upset these dispute investigation timelines, and the CFPB has even said it will be lenient in allowing the stretching of this time frame somewhat for lenders and credit bureaus that are looking into disputes.

See related: A collection agency is pursuing me for an old debt I don’t recognize. What to do?

Date of first delinquency is what’s important

Alesia, you report that the creditor updated the date of collection on the account with Experian to November 2020, whereas this collection account goes back to 2016. One important date related to delinquent accounts and collection accounts is the date of first delinquency.

This is the date on which the debt first went delinquent. The debt will be reported on your credit report for seven years after this date. In the case of a collection account, it will be on your credit report for seven years after it went into collection, which is typically six months after the date of first delinquency.

This means it will show on your credit report for up to seven-and-a-half years following the date of first delinquency. The creditor’s updating of the date of collection to November 2020 would mean there is a change to the date of last activity on the account. It does not change the actual date of first delinquency. So the debt will be reported through 2023 and not 2027.

See related: What should I do if my debt’s date of first delinquency is incorrectly reported?

You could initiate another dispute

The Fair Credit Reporting Act allows you to initiate a dispute with the credit reporting agency or the creditor that furnished the information to an agency if you don’t agree with what’s in your credit report. Alesia, you have gone through this process with all the credit bureaus, but you don’t agree with the result provided by one credit bureau.

You should contact the collection agency that provided the input to Experian to find out how this happened and see if you can sort out the issue. If there is a mistake it agrees to rectify with the credit bureau, don’t forget to get written input about the resolution for your records.

If that doesn’t work, you have the option of filing another dispute with Experian, and also with the furnisher of the information. Make sure to provide any additional and relevant information that could boost your case, such as updated credit reports from the other two credit bureaus.

If you don’t agree with the dispute resolution, you could also have a statement added to your credit report providing your account of the dispute.

Another course of action is to file a complaint with the CFPB, using its consumer complaint database. In case you don’t get a desirable outcome after all this, you  could even talk to a lawyer specializing in FCRA matters to get more detailed assistance on your particular situation.

Alesia, I hope the matter is ultimately resolved to your satisfaction!

Source: creditcards.com