More consumers using credit wisely, Discover reports

The nation's sixth-largest credit card lender by spending saw consumers use their cards more often in the first fiscal quarter of the year, as well as get a better handle on paying down their credit card debt.

Consumers used cards issued by Discover Financial Services more often in the first three months of the new fiscal year, and also continued to make efforts to reduce debt, which led to a huge increase in profits on a year-over-year basis, according to a report from the Wall Street Journal. In all, Discover saw profits jump 36 percent on an annual basis to $631 million, up from just $465 million in the same period last year.

"Continued improvements in credit performance, solid organic growth in each of our lending products and strong volume growth across our networks were key drivers of this quarter's earnings," said David Nelms, chairman and chief executive officer of Discover, according to the newspaper.

In all, Discover cardholders used their accounts more often in the three-month period, and purchase volume – the amount of money spent on the cards – climbed 7 percent to $25.6 billion, the report said. And at the same time, those borrowers also significantly reduced the number of outstanding balances they carried.

Discover's delinquency rate fell to just 2.22 percent in the first quarter, down from 2.39 percent in the fourth quarter of 2011, and a significant decline from the 3.59 percent observed on an annual basis. Further, its charge off rate – the total percentage of balances that had to be stricken from lender records as being uncollectable – dropped to 3.09 percent. In the previous quarter, it stood at 3.24 percent, and was at 5.96 percent during the first fiscal quarter of 2011.

As a result of sliding delinquencies and defaults, Discover had just $226 million set aside to cover loan losses, down from $271 million in the same quarter last year, the report said.

In general, consumers have been more conscientious in paying down their outstanding credit card debt and avoiding late payments for more than a year now, leading to all of the nation's top lenders reporting sinking delinquency and default rates. However, some experts also caution that these rates may soon bottom out and could begin climbing again to figures that are more in line with historical averages.