American credit card holders -- a group totaling millions of households -- appear to be wising up. Or perhaps we should say "Fooling up." Since the dawn of Motley Fooldom, we've warned readers about the dangers of credit card debt and have helped folks dig themselves out of debt. Our advice can partly be summed up as, "Don't charge more than you can afford, and pay those credit card bills on time."
According to a recent Reuters report, more Americans are now paying their credit card bills on time than ever. Moody's Investors Service, which maintains a "credit card delinquency index," recorded delinquencies in June at a four-year low. [Aside: Moody's (NYSE:MCO) is a fascinating company with some strong competitive advantages. It was recommended by Fool co-founder Tom Gardner in the Motley Fool Stock Advisor newsletter more than a year ago and has been faring well since then.]
Reuters noted that:
- "Moody's credit card delinquency index, which measures credit card bills 30 days or more past due, fell to 4.37% in June from 5.12% a year earlier."
- "Credit cardholders paid back on average 16.81% of their credit card debt, a record high and well above the year-ago 15.2%..."
It's true that credit card companies such as MBNA (NYSE:KRB), American Express (NYSE:AXP), Capital One Financial (NYSE:COF), and Citigroup (NYSE:C) make a lot of money in interest when consumers put off paying down their debt. But it's also true that they lose money when many cardholders ultimately just fail to pay off their debt, leading to write-offs and lost profits. So this development, if it's the beginning of a trend, may be good news for card companies.
It would also be good news for America. For one thing, the practice of paying your bills on time has a huge effect on your credit score. And that all-important credit score has the power to save you thousands -- or tens of thousands -- of dollars when you want to borrow money for a house or car or what have you.
Find out how credit works in our Credit Center. And learn more about how to maximize your credit score and about what makes it tick in these articles:
- Make Your Lender Tell the Truth
- Your Dumbed-Down Credit Score
- Who Has the Keys to Your Credit File?
- I'm in Credit La La Land
And this week, take advantage of an opportunity to get copies of all three of your credit reports (there are three main agencies that maintain records on you) from TrueCredit.
Longtime Fool contributor Selena Maranjian does not own shares of any companies mentioned in this article.
