Credit Card Delinquencies Fall by End of 2011

The national credit card delinquency rate (the ratio of borrowers 90 or more days past due) reached 0.78% in the fourth quarter of 2011, a drop of almost 5% from the same period one year ago and continuing well below historical norms. Not great news for debt relief providers.

Average credit card debt per borrower increased $239 from the same period last year to $5,204, though it too remains near record-low levels.

“2011 closed out with the lowest year-end card delinquency rate nationwide since 1995,” said Ezra Becker, vice president of research and consulting in TransUnion’s financial services business unit. “This is the net result of riskier loans having worked their way through the system, cautious risk management strategies on the part of lenders and consumers working to maintain the health and good status of their card relationships.”

If there is any good news in this it is that lenders are more likely to be less cautious moving forward in the extension of credit as they try to expand their portfolios with more less than prime customers.

Total card originations in 2011 grew by more than 14% relative to 2010. Moreover, in 2010 only 21.8% of new card accounts went to consumers with a VantageScore® lower than 700 (on a scale of 501 – 990); In 2011, that number had risen to 25.2%. So not only are more non-prime consumers gaining access to card credits, they also comprise a larger percentage of the cards entering the market. “We have seen a shift toward non-prime borrowers beginning in the second half of 2010 and continuing through the fourth quarter of 2011, which makes the current low delinquency rates even more remarkable,” added Becker. “This shift is driven in part by the fierce competition among lenders for prime borrowers, as well as the effects of ongoing consumer deleveraging efforts in the prime credit range. As a result, many lenders have put more of a focus on originating cards in the non-prime market.”

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Based on revised economic assumptions, TransUnion forecasts that credit card borrower delinquency rates could continue to drift upward in the short term, but then begin to gradually drop towards the end of the year. This forecast is based on seasonality effects and various other economic factors such as anticipated gross state product, consumer sentiment, disposable income, and employment conditions. The forecast changes as the economy deviates from a conservative economic forecast, or if there are unanticipated shocks to the economy affecting recovery.

According to the data, Mississippi, Georgia, Arkansas, and Alabama have the highest delinquency rates. The states with the highest credit card debt per borrower are Alaska, Colorado, Connecticut, and North Carolina.

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