Bankers are predicting that more debtors are likely to fall behind on their auto loans and credit-card payments this year, but there may be a silver lining.
While rising delinquencies will spell trouble for those individuals who cannot make ends meet, it could be a sign the overall economy is inching its way back to health.
"Given that delinquencies are so low at the moment, it really has no direction to go but to increase," said Andrew Jennings, chief analytics officer at credit reporting agency FICO. "[It's] something to take note of. And I think that is what risk managers are doing."
The latest quarterly survey FICO conducted with U.S. and Canadian bank risk managers found that nearly half of them forecast an increase in delinquencies this year on auto loans, credit cards and all other types of consumer loans.
In the survey, 44 percent of bank managers expect delinquencies on credit cards to increase during the next six months, 35 percent said delinquencies on car loans will rise, and 43 percent expect delinquencies on all loans to increase.
Jennings said the survey results do not suggest the nation is headed for another credit crisis, but the expectations for rising delinquencies are based on where things stand today. Loans delinquent for more than 120 days are now at a 10-year low.
Only about 1 percent of outstanding loans today are more than 120 days delinquent. That compares with 2009-10 when 120-day delinquent loans peaked at 3 percent. Historically, loans that are more than 120 days late typically account for about 2 percent of total outstanding loans, Jennings said.
The loan-delinquency rate has tumbled partly because financial institutions closed many credit accounts during the height of the financial crisis. Banks also tightened their credit standards. Meanwhile, consumers took it upon themselves to cut back on their use of credit and to pay off what they already owed.