With increased job opportunities and fatter paychecks, Americans may be better off then they have been in years, yet they are doing worse when it comes to paying off their loans every month.
Delinquencies rose in last year's third quarter, according to the American Bankers Association. The ABA's Consumer Credit Delinquency Bulletin tracks 11 loan categories, including home equity lines of credit, auto loans and credit cards. The report defines a delinquency as a payment that's 30 days or more overdue.
"There have been a lot of new jobs created, wages have increased, and that has improved the financial position of consumers," said James Chessen, ABA's chief economist. Still, "it's important for consumers to remain cautious and maintain their discipline in keeping debt at levels they can comfortably manage."
Credit card delinquencies increased to 2.74 percent of all accounts in the third quarter, the ABA said, though that's still below the 15-year average of 3.68 percent.
Because of those low delinquency levels, coupled with a strengthening economy and low interest rates, "you see some issuers loosening — or lowering — their credit standards," said Bill Hardekopf, credit card expert and CEO of Lowcards.com. "That's a way of capturing new customers."
At the same time, the improving jobs market and low unemployment has increased consumer confidence and spurred the demand for credit cards.
But as the number of credit card accounts in the U.S. rises, the majority of new customers are subprime borrowers, generally meaning those with a credit score of 660 or below. These are also the consumers who were affected the most by reduced lending during the recession and are gaining access to credit once again.
"There has been more credit being extended, and we'll see whether this is the start of a movement upward," Chessen said, referring to the increase in delinquencies. Still, "these types of fluctuations don't come as a surprise amid a six-year period in which bank card delinquencies have been so far below their long-term average," he said.
Auto loan delinquencies were also higher, up to 0.87 percent in the most recent quarter from 0.82 percent in the previous quarter, according to the ABA.
More than 33 percent of American households are making car payments, according to a Pew Charitable Trusts study, with over $1 trillion in auto loans now outstanding.
As in the credit card market, lenders are loosening their standards and letting some borrowers take on more debt than they can afford. Subprime lending, which is more profitable because lenders can charge much higher interest rates, has led to a recent increase in the number of Americans falling behind on their car loans, according to the Federal Reserve Bank of New York.
"It's reasonable to assume [delinquencies] will rise with so many new car loans being made," Chessen said.
On the upside, home-related delinquencies, including home equity loans and lines of credit, fell, according to the ABA. After the epic housing crash of the last decade, those who are taking money out of their homes continue to do so at a very conservative rate.
"The housing market has taken a long time to adjust," Chessen said, but "declining home equity delinquencies reflects a healthier housing market and rising home values."