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Can more loan delinquencies be good?

By Jeanine Skowronski ·
Wednesday, June 4, 2014
Posted: 3 pm ET

Are loan delinquencies about to boom? More bank risk managers seem to think so.

According to a survey from FICO, expectations among credit professionals for delinquencies on credit cards and auto loans are at their highest level since the fourth quarter of 2011.

Forty-four percent of survey respondents expect delinquencies on credit cards to increase during the next six months, while 35 percent expect delinquencies on auto loans to do the same. And 43 percent expect more delinquencies on consumer loans in general.

But these predictions don't necessarily spell doom and gloom. In fact, they may be good news for consumers with less-than-perfect credit scores.

"The fact that delinquencies are rising is consistent with some expansion of consumer credit," says Andrew Jennings, economist and chief analytics officer at FICO. "Clearly some slightly riskier people are getting loans."

Jennings says that while the data is something to keep an eye on, it's not a harbinger of imminent disaster, given loan delinquencies are currently at an all-time low.

"That trend is going to come to an end and it needs to come on an end," he explains, since a healthy consumer credit market is a key component of a strong economy.

FICO's survey captures the opinions of 229 risk managers at banks throughout the U.S. and Canada. Delinquencies are defined as loans with payments 90 days past due or worse. Its results aren't the first indication the loan market, which got much more stringent following the economic crisis of 2008, is opening up.

In May, data from credit bureau TransUnion found the non-prime population, defined as consumers with a VantageScore 2.0 lower than 700, makes up a bigger bulk of all new credit card loans, rising to 28.95 percent in the fourth quarter of 2013 from 27.28 percent in the fourth quarter of 2012.

Follow me on Twitter: @JeanineSko.

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