July 27, 2010 by staff
The number of Iowans filing for bankruptcy in the past three months fell from 2009 levels, and more Iowans balances paid by credit card and low.
Despite the debt reduction, Iowans may have more trouble qualifying for loans and credit cards.
“The credit, compared to pre-recession levels is still difficult,” said Scott Anderson, economist at Wells Fargo $ Co.
Anderson and other economists say that most households still have too much debt, and will continue to pay that debt for the next five years. That means less money for clothes, food, vacations and cars – and less fuel for the economic recovery.
Iowa consumers have improved their creditworthiness, increasing their average credit score of three points in June, the biggest monthly increase of any state, according to CreditKarma.com.
Iowa consumers an average credit score of 667 in June. Credit card companies calculate scores differently and have different thresholds of what is considered “good”, but generally a score below 650 is considered a risk.
Lenders are setting the minimum scores for credit products between 20 and 50 points higher than in 2007, says Ken Lin, CEO of CreditKarma.com.
“Consumers continue to have difficulty finding credit products especially if they type in the future high-risk range at high risk,” he said. “Two years ago I had a lot of options available to you. Today, you’ll be in a much more serious.”
Higher credit scores can also indicate a fear that the recession is not over yet, said Lin. “When consumers are down in the economy, or when we are in a recession, consumers tend to spend a little less, and that tends to increase your credit score,” he said.
bankruptcy filings are growing more slowly
In Iowa, bankruptcies rose by almost 15 percent in 2008 over the previous year as the downturn is leading consumers to make tough decisions about which bills to pay. Bankruptcies jumped an additional 26 percent in 2009, partly due to the recession and flooding in eastern Iowa during the summer of 2008.
“In the last two years, I’ve been busier than I’ve been a long time – at least from the agricultural crisis, when I did a lot of work on the farm of bankruptcy,” said Rush Shortley, a bankruptcy lawyer at Cedar Rapids and Coralville.
Customers have been coming for a variety of reasons, he said, but the floods and the economy are the common thread.
In Iowa, 5249 businesses and people went bankrupt in the first half of 2010, 55 percent of the 3381 bankruptcy in 2007, before the recession and the 2008 floods affected.
Bankruptcy in Iowa grew by 4 percent in the first six months of this year compared with the same period a year ago, data from the bankruptcy courts of two of Iowa show.
Bankruptcy in the second quarter fell 1 percent, falling for the first quarter after quarter since 2006, when a change in bankruptcy laws made it more difficult to erase credit card and other debts in bankruptcy.
Shortley has seen this trend in his practice, but he expects the numbers to rise again.
“Many people in Cedar Rapids are just now getting from the settlements” flood damage in 2008, he said. “I hope there will be a wave of new bankruptcy cases after all what is more or less settled and done, and people realize they did not get everything they needed to rescue.”
Too much available credit also led to excessive spending.
“The entire thrust in the last 15 years, before the balloon burst, was to sell as much credit as many people as he could, to get locked, fully committed to all its resources, so there was no room for adjustments low when things are not going so well, “said Shortley. ‘Of course, coming home to sleep in every way I can. ”
Iowa residents improve their creditworthiness
While some consumers need to escape the collapse of significant debt, others are paying credit card bills on time and take other steps to improve its solvency.
Residents of Iowa had a credit card delinquency rate of 0.80 percent in the first quarter of 2010 – the lowest it has been since the second quarter of 2008.
That compares with a delinquency rate of 1.11 percent nationwide, which measures the percentage of credit card holders in arrears in payments over 90 days at least one of their credit cards.
“I think the incentives currently exist for consumers and families to pay their debt. We are in an environment where the economic outlook remains uncertain,” said Anderson of Wells Fargo.
These incentives include low inflation, making it go further and paychecks to help families pay the debt faster, he said.
There are several factors – household income, consumer confidence and the rate of U.S. Savings – Affect the ability of consumers to pay credit cards.
“Layoffs have largely disappeared. We’re not seeing as many people lose their jobs, and helped to stabilize income,” said Anderson.
Iowa continues to have the lowest average credit card debt in the nation, according to TransUnion, a credit rating agency. Residents of Iowa had an average of 3872 and their credit cards at the end of March, a decrease of 10 percent since 4300 and the balance in the same quarter a year ago.
Ezra Becker, director of strategy consulting and TransUnion, noted that credit card balances have fallen in the last four quarters. It is expected that the default rate of 90 days is likely to decline further in 2010. ”
What remains to be seen is the impact of the financial regulations, including the law of new credit cards.
“What I’m seeing now is that fees and interest rates on credit cards are increasing, and a lot of people who were in contact with your credit card debt and can not,” said Shortley.
Wells Fargo, for example, announced in October that the annual rate would increase to 3 percentage points in most of its credit card holders.
“The important thing to understand about that without the increase in April, was very difficult for us to offer credit to many people as possible,” said Mike McCoy, president of Wells Fargo Consumer Credit, at the time.
Credit harder to find, spending remains anemic
The credit will be harder to get for “the foreseeable future,” said Anderson.
A year ago, a credit score of 700 might have been a consumer for a credit card with a low interest rate. Now lenders are looking for a score of at least 720 for the same terms.
A credit score of 580 may have you got some sort of credit, but one with a higher interest rate. Now credit card issuers will require tens of about 625.
“I do not credit back to those levels. It was probably too easy to get credit at the time,” said Anderson.
Gaylon Peterson, president of Rec Room Plus in Urbandale, said lending standards in the domestic financing of the store are “snug,” but adds that most customers qualify.
“Our client is a little higher end of the rule, so I do not know that we have seen a big impact on customers not being able to obtain credit, because most were fairly stable,” he said.
The changes in regulations, however, have reduced demand for domestic financing, because Rec Room plus is no longer allowed to offer an option for financing with no money down pool tables and hot tubs.
Rec Room addition, like most stores, has been strongly affected by a reduction in spending since the start of the recession, but Peterson says it’s better than it was a year ago.
Anderson said that while consumers pay for credit cards and saving for a rainy day, spending remains anemic.
“We are forecasting a very weak consumer spending,” said Anderson. Consumer spending represents about 70 percent of the economy, so while it is still slow, so the recovery.
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