September 16, 2014
More good news about credit card delinquency rates has arrived. The latest TransUnion Industry Insights Report found that the rate of credit card payments that were 90 days overdue or more dropped nearly 9 percent in the last year, from 1.27 percent to 1.16 percent of total payments. The findings are based on credit data from American consumers who have active credit files.
This is the lowest level the rate has sat at in seven years. If that isn’t positive enough, the rate has been trending downwards all year. Since the first quarter of 2014, the credit card delinquency rate has dropped 15 percent.
Regional Patterns
Digging into the numbers reveals some geographic patterns. Two of the states with the highest rates of delinquency are located in the South – Mississippi with 1.68 percent and Georgia with 1.50 percent – and Nevada in the West takes second place with 1.51 percent. This seems to align with a recent Urban Institute Study that also used TransUnion data. The Urban Institute found that 43.6 percent of Southern residents carried collections accounts and the state of Nevada holds the highest average amount of debt in collections. These numbers paint a bleak picture of some areas of the country, making it no surprise that some consumers feel like the recession inflicted permanent damage on the economy.
Other Findings
TransUnion’s report also looked into average credit card balances. The national average of credit card debt per borrower is at $5,164, the lowest since 2008. Although one could argue that the recession technically ended a while ago, consumers are still being cautious about their credit habits, and we may have experienced a permanent shift in our attitudes toward credit. Consumers are starting to simply use their card as a tool for making payments and not necessarily for carrying debt.
However, TransUnion also reports that the number of new credit card accounts is on the rise, especially with subprime borrowers. Defined by TransUnion as consumers with a VantageScore 2.0 credit score lower than 700, the subprime population represented 31.2 of new accounts in the first quarter of 2014, a 3.9 percent yearly increase. This could be concerning if subprime borrowers are not knowledgeably managing their credit. However, it could also be a welcoming sign that lenders are loosening restrictions for consumers who need financial assistance. In total, new credit card accounts increased by 17.75 percent over the past year.
Toni Guitart, director of research and consulting in TransUnion’s financial services business unit, said they also noticed a trend in increased credit card limits. This may suggest that lenders are feeling more confident, and that they’re trying to encourage more spending from consumers.
Takeaways
As long as credit exists, so will missed payments. TransUnion’s Industry Insights Report, though, shows that there’s still room for optimism. All age groups saw a decrease in delinquency rates over the past year, for example, with the 30-39 group seeing a decrease of 10.31 percent. As we slowly but surely grapple with the lingering effects of the recession, we’ll take good news when we see it.
Charmaine Ng is the Communications Coordinator at Credit Karma. When she isn’t writing her way through life, you can find her reading about the latest in entertainment and watching television almost every night of the week.