Credit Card Users Making Timelier Payments

Delinquency and average debt per borrower decline during the first quarter.

May 25, 2012

U.S. credit card users are doing a better job of staying on top of their payments.

Both the national credit card delinquency rate and the average credit card debt per borrower declined in the first three months of 2012, according to credit reporting agency TransUnion.

A new TransUnion report suggests the credit card marketplace continues to recover from the problems it faced during the Great Recession.

The national credit card delinquency rate, which measures the rate of borrowers 90 days or more past due, dropped from 0.78% in the fourth quarter of 2011 to 0.73% in the first quarter of 2012.

The average credit card debt per borrower also decreased in the first quarter by $242 to $4,962.

An encouraging sign

The delinquency rate and the average debt for U.S. credit card users had increased in both the third and fourth quarters of 2011.

Yet, taken in the context of the 2012 first-quarter numbers, those increases represent “little more than the usual seasonal influence,” according to Ezra Becker, vice president of research and consulting in TransUnion’s financial services business unit.

Consumers tend to charge holiday shopping purchases on their cards in the fourth quarter and pay them down in the first quarter through tax refunds and bonuses.

“After two consecutive quarters of increases in both the delinquency rate and average debt, it is encouraging to see a return to declines in delinquency,” Becker says.

Credit card delinquency
Credit card delinquency rates are highest in Mississippi, Georgia, and Alabama, and lowest in Iowa, South Dakota, and North Dakota. Average credit card debt levels are highest in Alaska and Colorado ($6,801 and $5,729, respectively) and lowest in Iowa ($3,893) and North Dakota ($3,998).

As the economy recovers, financial institutions are becoming more comfortable making credit available to consumers and consumers are becoming more comfortable charging purchases on their cards.

Total card originations in 2011 grew by more than 20% relative to 2010. Moreover, higher-risk consumers are being allowed more new card originations than they have in previous years.

In 2010, only 21.8% of new originations went to nonprime consumers. In 2011, that number increased to 24.2%. The trend continued into the first quarter of 2012, according to TransUnion, as 24.1% of new card originations went to these higher-risk consumers.

Growth in subprime consumers

“This growth is an indication that consumers are more confident in the economic outlook and are more comfortable charging purchases on their cards,” Becker says. “In addition, the increase in originations to nonprime consumers in 2011 and through the first quarter of 2012 may have made cards available to a group of consumers that previously had little access to revolving credit, and who are now using those new cards.”

Although higher-risk consumers now have greater access to credit cards, TransUnion forecasts that credit card delinquencies will remain near current levels, with potential for some seasonal fluctuation through the end of 2012.

“The good news is that increased lending, particularly to nonprime borrowers, hasn’t affected delinquency rates, which have remained unchanged over the past year,” says Becker. “[Credit] cards are one of the most important assets for consumers, and it is evident consumers have been working hard to stay current on their cards and to maintain access to this important financial tool.”