Americans are slowly regaining control of their household budgets.
The default rate on credit card payments, mortgages and auto loans eased last month, suggesting that borrowing habits are sobering up.
But much of that rehabilitation is a reflection of the tightened lending standards and lower spending limits imposed by banks in the economic downturn. The lower default rate also doesn't capture that millions of unemployed workers already defaulted on their loans earlier in the recession.
When a loan defaults, it means the bank lending the money is writing off the debt as unrecoverable. Auto loans and mortgages go into default after three months of missed payments. For credit cards, it's six straight months of missed payments.
The composite default rate on all consumer loans was 3.44 percent in June, down from 3.61 percent in May, according to a monthly index issued by Standard and Poor's. The index is based on data from Experian, which collects credit data on about 215 million people.
The composite default index has been declining steadily since May of last year, when it was 5.51 percent. In the summer of 2007 before the recession began, it was at 1.7 percent.
Last month, defaults on first mortgages fell to 3.27 percent from 3.45 percent in May. Credit card defaults fell to 8.81 percent from 8.88 percent, and auto loans dipped to 1.69 percent from 1.76 percent.
Defaults on second mortgages remained flat at 2.41 percent.
"People are continuing to go into default, but just at a slower rate," said David Blitzer, who manages indices for Standard and Poor's. "This pattern is typical for an economy that's coming out of a recession."
The new numbers fall in line with a well-established historic pattern of defaults moving in tandem with the unemployment rate. The jobless rate eased to 9.5 percent last month from 9.7 percent in May.
Economists don't expect any big gains in the job market this year. Yet default rates may continue recovering for a few reasons.
To start, banks have already written off much of their bad debt.
Banks have also gotten more selective about customers, to improve their odds of being repaid. That's especially true in the mortgage arena, where a lending free-for-all precipitated the subprime mortgage crisis.
Additionally, Americans are on a much tighter credit leash. Borrowers' access to credit fell 21 percent to $4.64 trillion in the first quarter of this year, compared with the second quarter of 2007 before the economy began unraveling.
Despite the newfound restraint by banks and borrowers, household budgets remain in disarray when viewed in a broader historic perspective.
The default rate for credit cards surged from 3.87 percent to 9.95 percent between the first quarter of 2007 and the same period of this year. The charge-off rate on all consumer loans leapt from 2.34 percent to 6.52 percent over the same time, according to data from the Federal Reserve.
Data for the second quarter, which may show slight improvements, hasn't yet been posted.
But the economic recovery has a long way to go, with the housing industry continuing to suffer unprecedented losses. Nearly 528,000 homes went into foreclosure in just the first six months of this year. If that rate keeps up, the annual number of foreclosures this year would eclipse the more than 900,000 homes repossessed last year.
By contrast, lenders have historically taken over about 100,000 homes a year.