|
||||||||||
The number of consumers who are behind on credit card payments by 90 days or more dropped dramatically in the fourth quarter of 2010, according to a recent analysis by the credit rating agency TransUnion.
At the same time, credit card lending resumed across the board — another positive sign that the credit environment is improving. According to the study, the number of 90-day delinquencies decreased to 0.82 percent in the fourth quarter of 2010. This amounted to an almost 32 percent drop from the previous 1.21 percent delinquency rate.
Credit card lending also bounced back with gusto. Year-over-year, the number of new credit cards issued jumped by 19.1 percent nationwide, according to TransUnion.
All states saw a rise in credit card lending, but it was more dramatic in some states than in others. For example, the number of new credit cards issued to consumers rose to a whopping 41.1 percent in Kentucky. In Nevada, that number rose to 34.3 percent, and, in Arizona, it rose to 29.8 percent.
Meanwhile, consumers have been steadily scaling back balances on their credit cards. The average combined credit card balance across all major brands, including Visa, MasterCard, American Express and Discover, dropped to $4,965 — an 8.6 percent decrease compared to the fourth quarter of 2009.
According to Ezra Becker, vice president of research and consulting in the financial services unit of TransUnion, the decrease in credit card balances is not just the result of more conservative credit habits by consumers. It also reflects the cumulative write-offs of unpaid balances on delinquent credit card accounts.
The average credit card balance across consumer credit cards has been in a downward trend since the summer of 2009. The fourth quarter of 2010 broke that downward trend when credit card spending increased during the holiday season. But Becker points out that year over year, average credit card balances declined significantly.
Credit card delinquency rates continue to vary considerably from state to state, indicating that consumers in states hardest hit by the economic recession are still struggling to catch up. The state with the highest credit card delinquency rates — such as Nevada at 1.27 percent, Mississippi at 1.13 percent and Florida at 1.07 percent — had more than double the late payment rates of states with the lowest delinquency rates — including North Dakota at 0.45 percent, Alaska at 0.54 percent and South Dakota at 0.55 percent.
In addition, the decrease in delinquency rates was not uniform across states. In thirteen states, consumers were falling even further behind on payments than they were in the previous quarter. For example, in Kansas, there was a 7.5 percent increase in late payments, and in Mississippi, there was a 6.6 percent increase.
The average credit card debt, in turn, increased in 33 states from the third to the fourth quarter — with the largest increases seen in the District of Columbia at 4.17 percent and in Iowa at 2.84 percent.
Cardholders in Alaska also continued to carry the highest average credit card balances, with the average clocking in at $7,010 across all cards — far above the second and third highest average card balances in North Carolina ($5,680) and in Tennessee ($5,605).
TransUnion’s Ezra Becker says that, overall, the numbers are a positive sign that consumers have become more fiscally responsible in their credit card habits and are more confident about the economy.
“Taken together, the recent news on rising consumer spending, increased demand for durable goods, the drop in the personal savings rate, and increases in consumer confidence indicate that consumers may now be demonstrating a more optimistic view of their financial outlook—possibly willing to expand their credit card use,” says Becker.
Becker expects credit card delinquencies to continue their downward trend throughout 2011.
