Cash-strapped Americans are falling farther behind on credit card and loan payments as the recession that has crippled the U.S. economy grinds on.
Delinquency on home equity loans jumped half a percent to 3.52% and late payments on credit card bills rose more than a point to a record 6.60%, according to a report from the American Bankers Association. Rising unemployment and the continued shock waves from the fall of the housing market are the main culprits, the group said.
"When people lose their jobs or work fewer hours, it makes it that much harder to meet their obligations," says ABA Chief Economist James Chessen. "Unfortunately, we're going to see higher job losses in the next year, and I expect elevated delinquencies."
The unemployment rate jumped to 9.5% in June, the highest in 26 years, according to the Labor Department. President Obama warns that the rate could hit double digits by year's end.
The rise in credit card delinquency is a signal that unemployed borrowers are using credit cards to meet their daily expenses after losing their jobs, according to the ABA.
Because of the late payments, banks are now tightening credit standards. They have issued 9.8 million new cards, a 38% decline from last year, according to data complied by Equifax, as reported in USA Today.
Chessen warns that the turmoil will continue unless the economy can find some way to get out of the recession.
“Delinquencies won’t improve until companies start hiring again and we see a significant economic turnaround,” says Chessen.