With the economy clearly in recovery mode, the percentage of credit card payments that were past due in the first quarter of this year fell sharply, an improvement after two previous quarters of record-high delinquency rates (search).

The seasonally adjusted percentage of credit card accounts that were 30 or more days past due dropped to 4.21 percent in the January-to-March quarter, the American Bankers Association (search) reported in a quarterly survey released Tuesday.

"This may be the break in the clouds we've been looking for," said the association's chief economist James Chessen.

The decline came after the delinquency rate shot up to an all-time quarterly high of 4.43 percent in the final three months of 2003. That had surpassed the previous record high of 4.09 percent in the third quarter of last year.

The improvement in credit card delinquencies came as the economy grew at a respectable pace and companies finally began to step up hiring. The better economic climate removed pressure on some households' budgets, helping them to pay bills in a timely fashion, economists say.

The association's survey showed that the delinquency rate on a composite of other types of consumer loans, including auto loans and home equity loans, dipped to 1.86 percent in the first quarter, down from 1.89 percent in the previous quarter.

Looking ahead, Chessen expressed guarded optimism. "While job growth is much improved, high gas prices may continue to put consumers in a financial pinch," he said.

But the impact on consumers would be minimal from a widely expected one-quarter percentage point increase in a key short-term interest rate controlled by the Federal Reserve (search), he said. "The cost to consumers would be $2.50 more per year on 1,000 of debt — less than the cost of a latte," Chessen said.

The Fed was starting a two-day meeting Tuesday to discuss interest-rate policy. Economists believe that policy-makers on Wednesday will agree to boost rates for the first time in four years now that the recovery is firmly rooted.