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Research and Statistics

Credit card delinquencies fell year to year, TransUnion says

Summary

Although recent data showed an annual decline in credit card delinquencies during late 2008, that trend is likely already over.

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Although recent data showed an annual decline in credit card delinquencies during late 2008, that trend is likely already over.

According to data released on Monday by credit bureau TransUnion, the national bank card delinquency rate — defined as the ratio of bank card borrowers 90 days or more delinquent on one or more of their bank cards — dropped 11 percent to 1.21 percent in the fourth quarter from 1.36 percent in the same period a year earlier. That decline is supported by consumer credit data from the Federal Reserve, which indicated a 6.7 percent annual slide in revolving credit balances (made up mostly of credit card accounts) during the fourth quarter.

However, when compared to the third quarter of 2008, the delinquency rate rose 11 percent to 1.21 percent. TransUnion didn’t see the increase over the final months of last year as cause for alarm, calling the advance “in line with seasonal trends in the fourth quarter historically.” The credit bureau says that trend results in higher balances and delinquencies around the holidays and lower numbers in the first quarter when tax returns are used to pay down debt.

See related: Credit card charge-offs hit record high in January, Credit card balances jump as economic woes deepenFed report: Banks continue to tighten lending standards

TransUnion attributed the quarterly rise in delinquencies to two factors: lenders’ tightening of access to credit and, as their borrowing options narrow, cardholders’ attempts to protect their credit card accounts by paying their bills. However, that trend appears short-lived. Citing the “worsening economic environment,” TransUnion says it now expects credit card delinquency rates to rise into next year. “If the administration’s bailout package gains sufficient traction, the credit card delinquency rate could peak in early 2010 and begin to move downward as the unemployment rate begins to fall and the drop in disposable income levels off,” TransUnion says in a press release.

TransUnion says its next batch of data for the first quarter will be released in late May or early June. “It will be interesting to see how consumers will spend their tax returns this year during the first quarter — whether they pay down credit card bills or use it for current day-to-day expenses,” says TransUnion’s Clifton M. O’Neal in an e-mail. “We do forecast, however, that delinquencies will continue to rise throughout 2009, reaching 1.8 percent by year’s end with unemployment playing a factor in this increase,” O’Neal says.

Other predictions also call for increasing credit card delinquencies. A report from research and risk firm Moody’s showed that card accounts more than 30 days past due climbed to 5.94 percent in January, the highest level since the rate’s historical peak of 6.31 percent in January 1992. Moody’s added that the record for card delinquencies is likely to be broken shortly.

Another credit card delinquency report, this one released today by Fitch Ratings, also points to worsening delinquency rates. Fitch reports its 60-plus day report rose to an all-time high at the end of January, at 4.04 percent.

Worse is yet to come, the firm predicts. “Record credit card delinquencies are just the latest sign that U.S. consumers are under considerable levels of stress,” says Michael Dean, head of Fitch’s U.S. consumer asset-backed securities office. “The latest numbers point to even higher default rates and worsening consumer credit quality measures in the coming months.”

Meanwhile, some analysts say the latest G.19 report from the Fed indicates that the economy is having a negative impact on cardholders’ ability to pay down credit card debt. These experts attribute the 1.2 percent January rebound in revolving credit to a surge in unemployment, which is forcing the suddenly jobless to put everyday expenses on plastic and encouraging those who are still employed to aggressively save — at the expense of paying off credit card bills.

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