American consumers place credit card payments above mortgage dues
New York, NY, United States (AHN) – American consumers have improved their credit standing by paying off more than $100 billion in debt leftover from the economic boom. However, they placed a higher priority on credit card payments over mortgage dues.
This development represented a change in consumer behavior attributed by the credit bureau TransUnion to changes caused by the financial crisis.
According to TransUnion’s latest Credit Risk Index, for the first quarter of 2011, American consumers’ CRI was at 123.56, which is 5 percent less than the index high of 129.67 registered on the fourth quarter of 2009. The Q1 data was also 1.6 percent lower compared to the 125.51 CRI for Q4 2010.
Transunion said the lower CRI is an indicator that U.S. consumers an increasingly likely to repay their debt obligations and improving on their debt management skills.
Along with an improvement in the CRI was a corresponding drop in consumer demand for credit in the first quarter of this year as the bureau’s Total Inquiry Index went down to 64.41 during Q1.
The downside to the new psyche is that the number of consumers who defaulted on their mortgage payments, but continued to pay their credit cards on time went up from 37 percent before the recession to more than 50 percent at the end of 2010.
Credit experts said this new consumer behavior is a perfectly rational and logical response as homes become a liability under a new payment hierarchy because the consequences of skipping a mortgage payment is not immediate since a legal proceedings such as foreclosure stretches for months.
Credit cards, in turn, assist consumers cope with daily needs such as putting food on the table and having electricity.
Credit card standing may take years to repair, but values of homes may take an even longer period to recover, which explains the shift in consumer behavior toward debt payments.
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