Consumers have become more cautious in using their credit cards as issuers tighten their lending standards. Delinquency rates have also been decreasing.

However, there are varying views on whether the declining delinquency rate is related to retail numbers diminishing.

Bill Hardekopf, CEO of, sees a correlation between delinquency rates, how consumers are using their credit cards and retail sales declining.

For instance, he said that the trend of delinquency rates going down might mean that consumers are not charging as much on their credit cards as they have in the past.

He added that since not as many consumers can pay off a credit card charge in its entirety at the end of each month, they are now waiting to purchase whatever product they want to buy until they can buy it with cash.

On the other hand, Scott Hoyt, senior director at Moody’s Analytics, disagrees, at least in recent months.

“Clearly, we’ve seen spending growth since the recession, while credit card use has, if anything, been declining,” he said. “On a long-term basis, lack of credit could be a minor constraint on spending. Clearly, month-to-month is a short time period, thus consumer habits are not a significant factor to retail numbers decreasing.”

From the issuer perspective, both parties believe that credit card originators have been taking initiatives to lessen risk in any way possible since the economic downturn. Issuers have canceled various risky accounts and have tightened their approval rates, among other things. In turn, borrowers with lower or even average credit scores have simply not been able to get a new credit card. Over time, this will result in a gradual increase in higher-quality borrowers and a decrease in defaults. 

Hoyt and Hardekopf view the lowering of delinquency rates as a result of both the tightening of lending standards and the decrease in consumers’ desire to borrow. They both said that one trend depends on the other and vice versa.

“A lot of consumers got burned in the second downturn of 2008 and their APR’s and interest rates on their credit cards are extremely high,” Hardekopf said. These borrowers have realized “the very expensive type of borrowing that credit cards really are.”

Hoyt pinpointed the start of dwindling delinquency rates to be in late 2010 and early 2011, as this was when the relationship between credit performance and economic standards broke down due to the tightening of lending standards. He does not anticipate this downward trend to stop any time soon.

However, he did predict that consumer and lender behavior will gradually return to more sustainable equilibrium-type levels as lending standards ease so that consumers will feel more comfortable borrowing, Hoyt believes it will take a number of years before this happens. “It may not even be complete before the end of the decade,” he said.

Hardekopf echoed this projection, saying that only when consumers are confident in the economy will they begin using their credit cards more and then delinquencies might start to go up again.

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