Credit card delinquencies fell to their lowest mark in 17 years in the second quarter, the sixth consecutive quarterly decline, as consumers remained cautious about taking on more debt and issuers held on to their conservative approach to lending, according to TransUnion.
The national credit card delinquency rate dropped to 0.6% to close the second quarter ended June 30. The number measures the rate of borrowers 90 days or more past due.
Card delinquency rates improved both on a quarter-over-quarter basis (-18.9%) and on a year-over-year basis (-34.8%), according to TransUnion, which released the information Tuesday as part of a quarterly analyses looking at how credit-active consumers are managing overall credit.
"National credit card delinquency rates have fallen to levels not seen since 1994 as consumers continue to tighten their spending," says Ezra Becker, vice president of research and consulting for TransUnion's financial services business unit. "TransUnion believes that the recovering economy is only indirectly impacting delinquency rates." Consumers also are using credit cards more responsibly, many delinquent accounts have moved to charge-off status and lenders remain conservative in their underwriting, Becker adds.
Credit card debt per borrower increased $20 in the quarter to $4,699, though it is still at a near record-low level. TransUnion recently documented the fact the low level has held during the recession in a credit card deleveraging analysis released last month (
It found that consumers made an estimated $72 billion more in payments on their credit cards than purchases between the first quarters of 2009 and 2010, which is in contrast to just five years earlier when consumers made an estimated $2.1 billion more in purchases than payments. That constitutes a nearly $75 billion turnaround in consumer payment dynamics from 2004 to 2009.
In 2011, between the first and second quarters, 49 states and the District of Columbia saw declines in credit card delinquency rates, with North Dakota the lone state to experience an increase.
On a more granular level, 83% of metropolitan statistical areas (MSA) saw declines in their credit card delinquency rates in the second quarter, an improvement compared to the first quarter when 74% of MSAs saw a decline. In Q4 2010, only 53% of MSAs experienced such a decline.
TransUnion forecasts that credit card borrower delinquency rates will continue to drift downward for the remainder of 2011 as the economy continues a slow recovery and financial institutions hold onto a conservative underwriting approach.
"Since the recession began, lenders have been increasingly scrutinizing the borrower's overall financial situation, e.g. duration of employment, credit and income history -- holding consumers to higher standards for loan approval," says Becker. "Those approved are less likely to default even in the face of continued high unemployment levels. Although there are still seasonal influences underlying credit card repayment patterns, they have been muted by the conservative use of credit by consumers. As the slow economic recovery continues, this trend should carry through the end of the year."
TransUnion's forecast is based on various economic assumptions, such as 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.
