National Credit Card Delinquencies Increase, But Remain Near Record Low Levels

The national credit card delinquency rate (the ratio of borrowers 90 or more days past due) increased in the third quarter for the first time since the fourth quarter of 2009, edging upward to 0.71 percent. Average credit card debt per borrower increased $63 in the quarter to $4,762, though it remains near record-low levels.  This information is reported by TransUnion and is part of its 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.

The Q3 2011 TransUnion data released today show credit card delinquency rates rising from the historic lows of last quarter. “This is the first quarterly increase we’ve seen in almost two years,” said Ezra Becker, vice president of research and consulting in TransUnion’s financial services business unit. “Even so, we are still well below historical norms. In fact, we’re at the second lowest delinquency rate nationwide that we’ve seen in the past 16 years.

“We find card delinquency being driven by a number of factors. One such driver is the changing risk profile of consumers opening new credit card accounts. In the face of competition for prime consumers and the clear deleveraging efforts of those consumers, lenders have been gradually shifting their focus to the sub-prime market.”

In the third quarter of 2010, 23.0% of new card accounts went to consumers with a VantageScore® lower than 700 (on a scale of 501- 990). In this past quarter, that number had risen to 25.2%. Over the same time period, the volume of new credit cards entering the marketplace remained essentially flat—and the proportion of new accounts given to consumers with a VantageScore of 800 or more dropped from 49.7% to 45.9%.

“When more high-risk customers are opening cards and fewer low-risk consumers are doing so, it is inevitable that delinquency rates will increase. In one sense this is good news: those consumers who are most affected by the continuing tough economy are gaining better access to the credit ‘breathing room’ they need to make ends meet,” added  Becker. “As the mean duration of unemployment in this country keeps growing, consumers are running out of financial options. In fact, the Bureau of Labor Statistics had to adjust its unemployment duration reporting methods to more accurately reflect the changing reality in the marketplace. At some point if the underlying economic environment does not improve, this could be reflected in higher national and regional delinquency rates.”

Between the second and third quarters of 2011, all 50 states and the District of Columbia experienced increases in their credit card delinquency rates.  On a more granular level, 89% of metropolitan statistical areas (MSAs) saw increases in their respective credit card delinquency rates in Q3 2011. This was a significant change compared to last quarter, when only 17% of MSAs experienced an increase.  In Q1 2011, only 26% of MSAs experienced such a rise.

Based on revised economic assumptions, TransUnion forecasts that credit card borrower delinquency rates could continue to drift upward in the short term. This forecast is based on various economic factors such as anticipated gross state product, consumer sentiment, disposable income, and interest rates. The forecast changes as the economy deviates from a conservative economic forecast or if there are unanticipated shocks to the economy affecting recovery.

TransUnion’s Trend Data is a one-of-a-kind database consisting of 27 million anonymous consumer records randomly sampled every quarter from TransUnion’s national consumer credit database. Each record contains more than 200 credit variables that illustrate consumer credit usage and performance. Since 1992, TransUnion has been aggregating this information at the county, Metropolitan Statistical Area (MSA), state and national levels. For the purpose of this analysis, the term “credit card” refers to those issued by banks.

As a global leader in information and risk management, TransUnion creates advantages for millions of people around the world by gathering, analyzing and delivering information. For businesses, TransUnion helps improve efficiency, manage risk, reduce costs and increase revenue by delivering high quality data, and integrating advanced analytics and enhanced decision-making capabilities. For consumers, TransUnion provides the tools, resources and education to help manage their credit health and achieve their financial goals. Through these and other efforts, TransUnion is working to build stronger economies worldwide. Founded in 1968 and headquartered in Chicago, TransUnion reaches businesses and consumers in 23 countries around the world.