Credit Crunch

One In Seven Creditworthy Americans Can't Pay Bills, Study Shows

Posted on Tuesday, December 7, 2010

In the wake of the worst financial crisis since the Great Depression -- and a spike in the unemployment rate in November -- one in seven creditworthy Americans weren't able to pay their bills, a new study shows.
As job losses and pay cuts took their toll, a staggering number of Americans who had never before had serious trouble paying their bills had a "negative credit experience," according to a new survey from Deloitte. These "first-time defaulters" were a full 11 percent of the population, the survey suggests.
One in seven people who had never before seen this kind of credit trouble ended up defaulting, the study showed.
The survey doesn't reflect irresponsible borrowers taking on more debt than they could pay, or even greedy banks offering predatory loans with outrageous interest rates. Instead, the data suggest many creditworthy Americans, most with credit scores above 620, are unable to make basic payments, such as credit card and medical bills.
As unemployment hovered around 10 percent after the financial crisis, Americans who had previously been in fine financial shape suddenly found themselves pinched. About half of the first-time defaulters blamed their newfound troubles on reduced income, and 38 percent said they now didn't have a job at all.
These responsible Americans now had trouble paying ordinary, everyday bills. Of the first-time defaulters, 43 percent couldn't pay their medical bills. Almost a third were more than 30 days late on a credit card bill -- at least three times. 14 percent had trouble paying their taxes.
More than a fourth of these first-time defaulters ran into trouble with bank loans. Of those, more than half had issues with a mortgage.
Although positive signs of an economic recovery are emerging, the picture for many remains bleak. Unemployment benefits for about two million Americans -- many of whom lost their jobs through no fault of their own -- expired this week, as some will now be struggling to stay warm through the winter.


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