Finance Globe

U.S. financial and economic topics from several finance writers.
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Credit Card Delinquencies at Lowest Level in 15 Years

Consumers have been busy reducing their credit card debt and delinquencies have fallen to the lowest level in nearly fifteen years, according to a report released by a national credit reporting agency.

Delinquencies fell in the first quarter of 2011 to 0.74 percent of credit card accounts, TransUnion reported on Monday. This figure is down 10 percent from the previous quarter and down nearly 33 percent from the same quarter last year. The last time delinquencies were at such a low was in the third quarter of 1996, when it was 0.76 percent. Accounts are considered delinquent when payments are late by 90 or more days.

By state, Nevada had the highest rate of credit card delinquency at 1.16 percent, followed by Florida at 1.04 percent and Mississippi at 0.92 percent. The lowest rate was in North Dakota at 0.36 percent, followed by Alaska at 0.46 percent, and Vermont at 0.48 percent. Only the District of Columbia experienced an increase in credit card delinquency since last quarter.

In addition to keeping up with their payments, American consumers are also whittling away their credit card balances. While the average credit card debt increased during the recession and peaked at $5,776 in the first quarter of 2009, in the first quarter this year it has declined to $4,679 - its lowest level in over ten years - as consumers work to pay down their debts in uncertain times.

Reflecting the higher cost of living in these states, Alaska had the highest average credit card debt at $6,811 and Hawaii came in third highest at $5,303. Surprisingly, considering its relatively low cost of living, North Carolina’s average credit card debt of $5,446 was the second highest in the U.S.

The lowest average credit card debt was in Iowa at $3,649, followed by North Dakota at $3,903 and South Dakota at $3,970. No states had an increase in the level of credit card debt from the previous quarter.

The 5.8 percent drop in credit card balances comes unexpectedly, considering that retail sales continued to increase through the first quarter of 2011. TransUnion says they don’t expect large increases in average credit card balances over the next two quarters due to the continuing deleveraging and the relatively high consumer savings rate, currently at 5.5 percent.

"Two big reasons for the decrease in credit card delinquency are that consumers continue to deleverage, and lenders are still conservative in how they extend new card credit," said Ezra Becker, vice president of research and consulting in TransUnion's financial services business unit.

"In today's economy, many consumers are continuing the trend of paying their credit cards before or in lieu of their mortgages, reversing the typical payment hierarchy. In paying their credit cards on time and reducing their debt, consumers are ensuring their access to liquidity, if needed, as the economy slowly recovers."

Just as consumers are reining in their debt and keeping up-to-date on paying their credit card bills, credit card issuers have also becoming more willing to lend. Over the past year, credit card originations increased by 23.6 percent - reflecting the Federal Reserve’s survey that found approximately 20 percent of banks have eased standards for credit card approvals.

Becker said, "From a delinquency perspective, not since the summer of 1996 have consumers demonstrated a better level of fiscal responsibility in meeting debt obligations on a timely basis. Even with increased economic pressures, they are placing a premium on paying off their credit card obligations and maintaining the health of their card relationships."

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Thursday, 30 March 2023

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