Despite rise, credit card delinquencies remain low
December 14, 2011
Although still near historic lows, credit card delinquencies edged up slightly in the third quarter of 2011, according to TransUnion. But the agency said it expects that delinquencies--payments late by 90 days or more--will remain low throughout 2012.
"Credit card delinquencies are expected to remain fairly steady in 2012 ranging between 0.69 percent and 0.76 percent--levels far below those typically observed in the last 15 years," Steve Chaouki, a TransUnion official, said in a statement.
According to the Associated Press, the slight rise in third-quarter late payments resulted from credit card companies approving about 250,000 new card accounts for customers with lower credit scores. But in general, those applications were the exception rather than the rule, as card issuers have continued to favor low-risk, high-credit-score applications.
It's likely that people have become more diligent about making their credit card payments because they have come to rely on their card more heavily during the recent economic downturn. Another factor is that credit card companies are generally approving fewer applications for people with low credit scores, the third-quarter exceptions aside.
The good news about credit card delinquency accompanied equally good news about mortgage delinquencies. Those rates, which measure the percentage of mortgage holders who are 60 or more days behind on their payments, is expected to also decline by the end of 2012, according to TransUnion.
The agency said mortgage delinquencies are expected to drop to 5 percent--below the 6.9 percent peak recorded in late 2009. Some of the drop, however, is the result of bank completing foreclosure proceedings. And because the delinquency rate on mortgages was 1.5 to 2 percent before the recession, the current rates remain relatively high.
The mortgage and credit card data suggest that people with financial trouble may be choosing to make their credit card payments ahead of mortgage payments, according to the Atlanta Journal-Constitution. This could be a reflection that people are placing more value in their credit cards than in their homes, the values of which continue to decline in many parts of the country.
According to the Journal-Constitution, the percentage of consumers who are current on credit card payments but delinquent on mortgage payments has climbed from 4.3 percent in 2008 to 7.4 percent in 2010, indicating that some people are choosing to miss a mortgage payment before they default on a credit card.
TransUnion also reported that credit card balances have also declined in recent years to an average of $4,762 in 2011, down about $1,000 from 2009 figures. This is a result of both people borrowing less and banks lowering credit limits.