CHICAGO (8/21/12)--U.S. credit card delinquency rates remain low, as does credit card debt, according to a new report from TransUnion, a global information and risk management company. This has implications for credit unions and other financial institutions.
The national credit card delinquency rate--the ratio of borrowers 90 or more days past due-- dropped to 0.63% in the second quarter from 0.73% the previous quarter, said TransUnion. The credit card delinquency rate is at its lowest level since reaching 0.60% in second quarter 2011. Prior to that, the last time the credit card delinquency rate was below its current level was in fourth quarter 1994 at 0.61%.
Average credit card debt per borrower increased the past year, moving up to $4,971 in the second quarter from $4,699 a year earlier. However, credit card debt continues to remain relatively low, more than $700 lower than the $5,719 in second quarter 2009.
"The national credit card delinquency rate continues to remain at the lowest levels we've observed in 18 years," said Ezra Becker, vice president of research and consulting in TransUnion's financial services business unit. "It's a positive situation because average borrower balances have increased over the past year as new card originations have grown. These low delinquency rates reflect both continued conservatism in lender underwriting and the ongoing prioritization of card payments among consumers."
Total card originations in the second quarter grew by roughly 4% from the same period last year. The share of non-prime, higher-risk consumers (with a VantageScore credit score lower than 700 on a scale of 501-990) was 26.1%. That is slightly lower than one year ago (27%), but still much higher than the 20.6% observed in second quarter 2010.
"While non-prime borrowers made up a slightly smaller percentage of all new trades in this latest quarter, they continue to gain more access to credit," Becker said. "In conjunction with the growth in the overall number of card originations in the last few years, it means that the credit card pie is bigger, and non-prime consumers are getting a bigger slice of that pie.
"This is important to note, because one would think delinquencies would rise as non-prime borrowers gain more access to credit," he added. "We've found that consumers continue to value their credit cards more than ever and will likely do so at least until unemployment abates."
Only five states saw increases in their credit card delinquency rates quarter over quarter. On a smaller level, 20% of metropolitan statistical areas (MSAs) reported increases in their delinquency rates in the second quarter. This was down from first quarter, when 28% of MSAs experienced an increase.
Based on current economic assumptions, TransUnion is maintaining previous forecasts for credit card delinquencies to remain near current levels, with potentially some seasonal fluctuations, through the end of this year. The forecast is based on seasonal effects and other economic factors such as anticipated gross state product, consumer sentiment, disposable income and employment conditions.
The forecast changes as the economy deviates from a conservative economic forecast, if there are unanticipated shocks to the economy affecting recovery, or if lenders materially change their underwriting standards, TransUnion said.
This information is part of Transunion's ongoing series of quarterly analyses of credit-active U.S. consumers, evaluating how they are managing credit related to mortgages, credit cards and auto loans.