Consumer arrears continued to improve in June despite the headwinds of rising inflation driven by higher fuel and electricity costs.Credit agency Centrix's latest Credit Indicator shows credit arrears in June at their lowest level in five years, falling to 10.65 percent of the credit-active population.There were now 420,000 Kiwis behind on payments, down from 432,000 in May.Centrix said hardship cases also fell year on year in June. As did mortgage arrears which were down to their lowest level since December 2021.However, 84,000 consumers were still 90 days or more behind on payments, most of them renters.That's down by around 5000 on May's result.Centrix chief operating officer Monika Lacey said that, overall, while New Zealand was not out of the woods quite yet, things were heading in the right direction."Credit conditions continue to improve. Consumer arrears are continuing to trend downwards, which is a really positive sign," Lacey said. "And businesses are also starting to demonstrate that they are able to meet their obligations sooner."Mortgage arrears also fell in June, reaching their lowest level since 2022.The report showed consumer credit demand remained subdued and was down 7.3 percent year on year.Credit card enquiries fell 15.8 percent, retail energy enquiries were down 20.7 percent and Buy Now, Pay later enquiries were down 24.9 percent.Centrix chief operating officer Monika Lacey.Supplied"I think consumers are being a little bit cautious at the moment and probably making slightly better decisions when it comes to discretionary lending products," Lacey said. "So, where they might have gone out to borrow for some item that perhaps isn't an essential item, they might be thinking twice about it. There's still a little bit of uncertainty in the economy."When it came to business conditions, Centrix reported the picture was mixed, with business credit demand softening and company closures and liquidations remaining elevated across hospitality and retail trade.In the construction sector, 755 firms were liquidated during the past year, around 0.9 percent of the sector.In hospitality, there were 419 liquidations, up 47 percent year on year.However, that amounted to only 1.3 percent of the sector.Overall business defaults were declining and the average credit quality of new applications had improved."Where we look at business credit defaults, they're down 13 percent year on year, which indicates that businesses' recent payment behavior has definitely improved," Lacey said.Meanwhile, Lacey said that for those who were still doing it tough, it was important to reach out for assistance."So, if you are having difficulty as a business or as a person meeting your payment obligations, the best thing you can do is reach out to your credit providers or your financial advisers and work through a plan for how you can resolve those arrears."