Credit card delinquencies will drop sharply again in 2011, continuing the large decline experienced in the second half of 2010, predicts TransUnion, a Chicago-based credit bureau.
Credit card delinquency rates already have dropped dramatically since peaking in the first quarter of 2009, when about 1.21% of all cards were 90 days or more past due. With consumers being more careful about how they use credit cards, TransUnion expects card delinquencies to drop to 0.75% by the end of 2010, with the rate falling even further and ending next year at about 0.67% of all balances.
The expected decline will come partly from reductions in “charge-offs in the higher-risk segments” and because of “more conservative spending in the low-risk segments,” according to TransUnion.
“Many factors have influenced the way consumers view and utilize credit card credit, including the Credit CARD Act, which has shifted the way lenders market and price this instrument,” says Ezra Becker, TransUnion vice president of research and consulting. Other factors include the payment-hierarchy flip consumers displayed this past year in which they paid their credit card bills before their mortgages, dramatic increases in the volume and duration of unemployment, and home-value depreciation, she says.
Tighter lending standards also are playing a role. More than 8 million consumers have dropped off the credit card rolls in the past year, many because their cards were cut off by banks. That means 78 million U.S. consumers do not have credit cards compared to 70 million last year (
Because of the recession, banks are less likely to open new accounts for consumers with troubled credit histories, TransUnion reports.
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