Consumers’ outstanding credit card debt increased during the third quarter, while the proportion of consumers falling behind on their monthly card-account payments rose for the first time in nearly two years, according to a report TransUnion LLC released Tuesday.
The credit card delinquency rate (the ratio of borrowers 90 or more days past due) was up for the first time since the fourth quarter of 2009, edging to 0.71%. Average card debt per borrower increased $63 in the quarter to $4,762, though it remains near record-low levels.
"This is the first quarterly increase we’ve seen in almost two years," says 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.
The information is part of TransUnion's 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 show credit card delinquency rates rising from the historic lows of last quarter.
Based on new 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.
"We find card delinquency being driven by a number of factors," adds Becker. "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 subprime 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,” says 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.
