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Credit-Card Users Start to Mend Their Ways

U.S. mortgage delinquencies and home foreclosures are still trending up in this struggling economy. But according to credit-rating agency Moody's Investors Service (MCO), delinquency rates are down for that other great source of consumer borrowing: credit cards.

Troubled accounts, those more than 30 days past due, declined in July for the fourth month in a row, to the lowest level all year: 5.7%, down from 5.8% in June. With that decline comes another sign that American consumers are becoming more vigilant about paying their credit card bills: Charge-offs (accounts considered uncollectible) also decreased in July, for the first time since September 2008.

Outstanding credit-card debt is falling as well, for the first time in about five years (chart), along with outstanding card balances. In part, that's because lenders—trying to recover from a daunting pile of bad debt on the books—have lowered credit limits. "When people realize that their lines are lower, they're more cautious," says Gene J. Truono Jr., managing director of BDO Consulting, which advises financial institutions.

The modest pullback in credit-card debt—it's still high relative to household incomes—also reflects widespread anxiety, he says. "Regardless of what you read, consumer confidence is not strong," says Truono. "People are concerned about continuing layoffs, and they don't want to be stuck with having to file for bankruptcy to get rid of their debt. That's a huge factor in changing behavior."

For now, at least. Lewis Mandell, who teaches finance and business economics at the University of Washington's Foster School of Business in Seattle, expects the decrease in credit-card debt to be short-lived. Despite all the talk of the Great Recession, Mandell says, the downturn won't last long enough to permanently alter Americans' borrowing and spending habits. And as memories of the financial crisis fade, consumers will return to their spendthrift habits. "In five years, credit-card spending will go back to where it was," he predicts.

As for today's chastened consumers, they still have a way to go when it comes to tidying up their personal balance sheets. While uncollectible credit-card accounts have declined, they nevertheless remain at 10.5%, much higher than the historical average of 5% to 6%. And more problems in plastic could flare up if the unemployment rate climbs higher—as economists expect—or if back-to-school and holiday shopping begins to strain household budgets.

Says Greg Larkin, lead financials analyst at researcher RiskMetrics Group: "If '1' is the sickest consumers have ever been, they're still hovering around a '2.'"

—Adrienne Carter and Ben Levisohn

B-School: The View at the Gate

Women now make up 46% of worldwide MBA candidates, more than ever before.That's one finding from the annual applicant survey by QS World MBA Tour, a London-based group that holds MBA fairs globally.

Last fall and again in the spring of 2009, QS polled nearly 4,000 MBA applicants in 35 countries about everything from their preferred study destinations to post-MBA career plans.

U.S. programs still rank first in popularity, says Nunzio Quacquarelli, managing director of the QS World MBA Tour and a co-author of the report. But "partly because of the U.S. visa situation, more foreign students have shifted to looking at countries in Europe and Asia for schooling."

That shift, says Quacquarelli, also explains this crop of candidates' stated preference for a one-year MBA (44%) over a two-year program (43%), a first in the survey's 11-year history. (Two-year degrees are the norm in the U.S. and Canada.) The poll also found a doubling of applicants from the nonprofit sector—to 6% from 3% in 2008. Also up: the percentage of those naming nonprofit work as a career goal: 6.4% vs. 3.8% last year.

Starting a business is the No. 1 post-MBA career goal this year, Quacquarelli says. And at No. 2: financial services, almost as popular as it was last year. "The sector is traditionally the big absorber of MBAs," he says. "And the salary and bonuses are still so high that it's alluring, despite fact that there are fewer jobs."

—Alison Damast

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