Credit Card Delinquency Rates Fall in First Quarter: TransUnion

Chicago – 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 1.11 percent in the first quarter of 2010, down 8.3 percent over the previous quarter. Year over year, credit card delinquencies fell by 15.91 percent.

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 quarterly from approximately 27 million anonymous, randomly sampled, individual credit files, representing approximately 10 percent of credit-active U.S. consumers and providing a real-life perspective on how they are managing their credit health.

Quarterly Statistics

As expected, incidence of credit card delinquency was highest in Nevada (1.79 percent), followed closely by Florida (1.59 percent) and Arizona (1.40 percent). The lowest credit card delinquency rates were found in North Dakota (0.59 percent), South Dakota (0.62 percent) and Alaska (0.68 percent). Only two states showed increases in credit card delinquency – Arkansas (3.15 percent) and Alaska (1.5 percent). The two states with the largest quarter-over-quarter drop in delinquency were Vermont (-18.18 percent) and New Mexico (-16.7 percent).

Average credit card borrower debt (defined as the aggregate balance on all bank-issued credit cards for an individual bankcard borrower) drifted downward for the fourth consecutive quarter nationally by 4.95 percent to $5,165 from the previous quarter’s $5,434, and down 10.57 percent compared to the first quarter of 2009 ($5,776).  The highest state average credit card debt remained in Alaska at $7,135, followed by Tennessee at $6,688 and Alabama at $6,126. The lowest average credit card debt was found in Iowa ($3,872), followed by North Dakota ($4,144) and South Dakota ($4,218).

Once again, no state showed an increase in average credit card debt from the prior quarter. The steepest decreases in average credit card debt over the previous quarter occurred in New Mexico (-6.80 percent), Kansas (-6.77 percent) and Iowa (-6.45 percent).

On a year-over-year basis, national credit card originations dropped almost 24 percent.  The drop was consistent regionally as well, with the smallest decline in year-over-year originations seen in North Dakota (-7.48 percent), Rhode Island (-12.15 percent), and South Dakota (-15.83 percent). Nevada, Maryland, and Pennsylvania experienced the steepest year-over-year declines (-34.15 percent, -31.30 percent, and -29.84 percent, respectively).

As credit card delinquency trends differ between the national and state economies, metropolitan areas also show different movements in the first quarter of this year. Seventy-eight percent of metropolitan statistical areas (MSAs) showed a decrease in their 90-day credit card delinquency rates since last quarter. This is compared to a 26-percent decrease between the third and fourth quarter of last year.

Even though all but two states show an overall drop in credit card delinquency, some metropolitan areas still showed deterioration over the previous quarter within those states. For example, the state of New Mexico as a whole saw a 16.7 percent drop in delinquency over last quarter, but the card delinquency rate in the Las Cruces MSA actually rose 5.6 percent in the same time period. Conversely, the state of Arkansas showed the highest overall state increase in credit card delinquency rates, yet contained a metropolitan area that moved downward over last quarter (Fort Smith, Arkansas-Oklahoma, -24.5 percent). This clearly demonstrates local economic dynamics can influence consumer credit performance.

U.S. Analysis
“The last four quarters of consecutive decreases in credit card balances shows that consumers continue to focus on paying down their credit cards in response to economic uncertainty and the continued somewhat anemic employment outlook, wanting to keep a credit cushion available for hard times,” said Ezra Becker, director of consulting and strategy in TransUnion’s financial services business unit.

“We see the effect of this conservative approach on delinquencies as well. Seasonal influences have been muted in the face of concerted borrower efforts to maintain the health of their credit card relationships. The more pronounced up-and-down movement in credit card delinquencies over the previous four quarters now has flattened into a legitimate improvement trend in nonpayment behavior. For example, over the last ten years the first quarter has shown a reduction in credit card delinquency rates only 3 times, including the 2001 recession,” continued Becker. “Furthermore, this quarter-over-quarter improvement is present in other stages of credit card delinquency—for example, in 60-day delinquency rates as well as in 120-day rates.”

Forecast
“Since the beginning of the recession, TransUnion’s national and state forecasting models have described 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 revised economic assumptions, which are now more optimistic than before, TransUnion believes that the 90-day credit card delinquency rate, apart from seasonal ups and downs, will likely continue to decrease in 2010, possibly dropping below 1.0 percent by year end,” said Becker.

At the state level, Nevada is expected to experience the highest delinquency rate by the end of 2010 (1.68 percent), while North Dakota is anticipated to show the lowest delinquency rate (0.52 percent).

TransUnion’s Trend Data database
The source of the underlying data used for this analysis is 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.

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