Credit Score Articles

More Americans Fall Behind On Debt

Tight finances may have caused a growing number of Americans to fall significantly behind on credit card debt, which can be damaging to their credit scores.

Payment history typically accounts for 35 percent of a credit score. Other factors include amounts owed, length of credit, type of credit and new credit.

A late payment will remain on a consumer's credit report for up to seven years.

A report by Fitch Ratings showed that the number of accounts that are 180 days or more overdue increased 11 percent during the January collection period, compared to the previous month. This debt becomes a "charge-off" when it is deemed uncollectible by the lender.

In an earlier release, Capital One Financial Corp. announced that charge-offs among its customers increased from 10.14 to 10.41 percent in January. The percentage of cardholders with charge-offs decreased at Bank of America Corp. and Discover Financial Services Inc. during that time frame.

Both 30- and 60-day delinquency rates decreased during that month, according to Fitch Ratings. The number of accounts that are 30 days overdue fell to 5.38 percent, while the percentage of those that are 60 days overdue decreased from December's record high of 4.54 percent to 4.16 percent.

Debt that is 60 days overdue often leads to a charge-off, according to the report. The percentage of such loans has stabilized recently, but is still considered historically high.

"Late-stage delinquencies are still trending in the 4 percent range industry-wide, which is keeping charge-off levels in the double-digits," Michael Dean, managing director of Fitch Ratings, said.

Dean said these percentages would remain near or at their current levels unless the unemployment rate significantly improves. Unemployment levels have fallen since October, reaching 9.7 percent in January. This is its lowest rate since August 2009.

However, Fitch Ratings predicted that the unemployment rate would grow in 2010, peaking at 10.4 percent in the second quarter. Levels would remain above 10 percent for the remainder of the year, according to the report.

Reduced income from job loss or cut wages makes it more likely for consumers to fall behind on payments and contribute to high credit card delinquency and charge-off rates. Making payments on time can contribute to a stronger credit report and higher score.