SOURCE: TransUnion

Credit and personal finances

November 29, 2010 06:05 ET

TransUnion: Credit Card Delinquencies Continue to Fall to 1999 Levels as More Than 8 Million Consumers Stop Using General Purpose Credit Cards

CHICAGO, IL--(Marketwire - November 29, 2010) - TransUnion's quarterly analysis of trends in the credit card industry revealed that the national credit card delinquency rate (the ratio of bankcard borrowers 90 days or more delinquent on one or more of their credit cards) decreased to 0.83 percent in the third quarter of 2010, down almost 9.8 percent over the previous quarter. Year over year, credit card delinquencies fell by 24.6 percent.

TransUnion's analysis estimates that more than eight million consumers stopped actively using bank-issued, general purpose credit cards over the past year. This deleveraging is believed to be due in part to charge-offs in the higher risk segments of the population, more conservative spending in the low-risk segments, and significant efforts by consumers across the board to maintain the health of their credit card relationships as a financial cushion. Based upon income levels estimated by TransUnion's income estimation model, consumers with higher incomes were just as likely as consumers with lower incomes to suspend their use of this payment option.

"The vast majority of the consumers who do not possess or have stopped using credit cards continue to have and use other forms of revolving and installment credit, and of course still need to pay for necessities," said Ezra Becker, vice president of research and consulting in TransUnion's financial services business unit. "In 2009, well over 70 million consumers did not have an active, general-purpose bank issued credit card. During the course of one year, more than 8 million additional consumers joined these ranks, making it one of the fastest growing consumer segments. Consumers who do not have or use bank-issued, general purpose credit cards still have a need for other payment vehicles, a fact which is beginning to attract significant attention from credit and debit providers alike."

Q3 2010 Credit Card Statistics

  • Incidence of credit card delinquency was highest in Nevada (1.28 percent), followed by Florida (1.09 percent) and Mississippi (1.06 percent). The lowest credit card delinquency rates were found in North Dakota (0.48 percent), South Dakota (0.53 percent) and Nebraska (0.56 percent).
  • Only two areas showed an increase in credit card delinquency -- the District of Columbia (19.67 percent increase) and Mississippi (1.92 percent increase). The two areas of the country with the largest quarter-over-quarter drop in delinquency were Alaska (-19.2 percent) and Nebraska (-17.6 percent).
  • National average credit card borrower debt (defined as the aggregate balance on all bank-issued credit cards for an individual bankcard borrower) edged upward for the first time in six quarters by 0.28 percent to $4,964 from the previous quarter's $4,951, but down 11.54 percent compared to the third quarter of 2009 ($5,612).
  • The highest state average credit card debt remained in Alaska at $7,159, followed by Hawaii at $5,716 and North Carolina at $5,640.
  • The lowest average credit card debt was found in Iowa ($3,807), followed by North Dakota ($4,103) and South Dakota ($4,196).
  • All but 15 states showed an increase in average credit card debt from the prior quarter. The largest increases in average credit card debt over the previous quarter occurred in West Virginia (2.81 percent), Wyoming (2.2 percent) and Hawaii (2.19 percent).
  • On a year-over-year basis, national credit card originations increased for the first time since the recession began in late 2007. Only nine states showed decreases in originations since the third quarter of 2009. The states with the greatest year-over-year increases were Delaware (21.3 percent), Oklahoma (16 percent), and Pennsylvania (15.8 percent).
  • The areas with the steepest declines in year-over-year credit card originations were the District of Columbia (-10.3 percent), Minnesota (-9.6 percent), and Michigan (-4.2 percent).
  • As credit card delinquency trends differ between the national and state economies, metropolitan areas can also show different credit dynamics relative to the state level. Approximately 77 percent of metropolitan statistical areas (MSAs) showed a decrease in their 90-day credit card delinquency rates since last quarter, which is generally consistent with national trends.
  • The area with the largest drop in delinquency since the last quarter was the Dubuque, Iowa Metropolitan Statistical Area (-48.4 percent). The area with the largest increase in delinquency since last quarter was the Lewiston, ID-WA Metropolitan Statistical Area (92.7 percent).

U.S. Analysis and Supporting Quotes
"The third quarter marks the first time since the recession officially ended in the summer of 2009 that average consumer credit card balances have not declined, although aggregate balances have dropped. The reason for this apparent contradiction is that the net number of active credit card accounts is continuing to drop, and it is falling faster than the dollar deleveraging rate.

"In the subprime segment, consumers are also losing access to card credits through charge-off and increased conservatism in underwriting standards. Although the Federal Reserve's Senior Loan Officer Opinion Survey on Bank Lending Practices recently reported that a small fraction of respondents are easing standards for approving credit card applications, that loosening of standards has not yet become wide spread. Across the risk spectrum, it appears that consumers are still working to maintain available credit as a financial cushion.

"On the delinquency side, the news remains good as consumers continue to show fiscal responsibility in paying down their credit card obligations. As we have seen since the beginning of the recession, incident delinquency rates in the credit card space remain well within expected annual variance and seasonal norms. Moreover, the drop in the savings rate quarter over quarter*, coupled with the drop in the number of active cardholders, might lead one to infer that consumers are shifting their focus away from a pure savings mindset to one that may include increased non-credit spending, such as through debit or checking transactions."
Ezra Becker, vice president of research and consulting in TransUnion's financial services business unit.

Forecast

  • At the state level, Nevada is again expected to experience the highest delinquency rate by the end of 2010 (1.1 percent) while North Dakota is anticipated to show the lowest delinquency rate (0.38 percent).

"Since the beginning of the recession, TransUnion's national and state forecasting models have tracked how credit card delinquency rates are impacted by economic factors such as median household income, consumer confidence and the U.S. savings rate. Based on our current economic assumptions, TransUnion believes that the 90-day credit card delinquency rate could continue to decrease through the remainder of 2010, perhaps reaching as low as 0.75 percent by the end of the year."
Ezra Becker, vice president of research and consulting in TransUnion's financial services business unit.

Supporting Resources/Links
TransUnion Trend Data Interactive U.S. Map
TransUnion 2Q Mortgage Statistics
TransUnion Payment Hierarchy Study
TransUnion Value of Loyalty/Delinquency Study
TransUnion on Twitter

TransUnion's Trend Data database
The report is part of an ongoing series of quarterly consumer lending sector analyses focusing on credit card, auto loan and mortgage data available on TransUnion's Web site. Information for this analysis is culled from TransUnion's Trend Data and the anonymous credit files of approximately 10 percent of credit-active U.S. consumers, providing a real-life perspective on how they are managing their credit health.

TransUnion's Trend Data, 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.

*For 3Q10, The Commerce Department reported that consumers have been saving less this quarter than the quarter before relative to their disposable income. The national savings rate as a percentage of disposable personal income was recently reported to be about 5.5 percent -- down from about 6.0 percent the prior quarter.

About TransUnion
As a global leader in credit and information 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 comprehensive data and advanced analytics and decisioning. 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 employs associates in more than 25 countries on five continents. www.transunion.com/business

Graphics and/or photographs to accompany this release can be obtained by members of the media by contacting Cliff O'Neal at 312-985-2540 or coneal@transunion.com or Dave Blumberg at 312-985-3059 or dblumbe@transunion.com.

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