Credit Card Debt and Delinquencies Increase in Third Quarter: TransUnion

TransUnion.com released today the results of its analysis of trends in the credit card lending industry for the third quarter of 2008. The report is part of an ongoing series of quarterly consumer lending sector analyses focusing on credit card, auto loan and mortgage data that may be found on TransUnion’s Web site.

Statistics

Average bankcard borrower debt (defined as the total bankcard debt per bankcard borrower) increased nationally 1.57 percent to $5,710 from the previous quarter’s $5,621, and 6.0 percent compared to the third quarter of 2007 ($5,387). The highest state average bankcard debt was in Alaska at $7,827, followed by Nevada at $6,636 and Tennessee at $6,568. The lowest average bankcard debt was found in Iowa ($4,277), followed by North Dakota ($4,403) and West Virginia ($4,517). Bankcard debt is the total balance of bank issued credit cards for an individual consumer.

The steepest increases in average bankcard debt over the previous quarter occurred in Wyoming (4.96 percent), Delaware (4.12 percent) and Arizona (3.12 percent). Maine experienced the largest drop in its average credit card debt (-1.4 percent), followed by North Dakota (-1.12 percent) and Alaska (-0.57 percent).

Nationally, the ratio of bankcard borrowers delinquent on one or more of their bankcards increased to 1.09 percent in the third quarter of 2008, up 4.8 percent over the previous quarter. However, on a year-over-year basis the national delinquency incidence rate has risen 5.8 percent from 1.03 percent in the third quarter of 2007. Incidence of delinquency was highest in Nevada (1.79 percent), followed closely by Florida (1.45 percent) and Mississippi (1.45 percent). The lowest bank card delinquency incidence rates were found in North Dakota (0.70 percent), Vermont (0.70 percent) and Utah (0.76 percent). On a positive note, four states showed a decline in their quarter-over-quarter delinquency incidence rates. Wyoming’s delinquency rate dropped the most (-9.1 percent), followed by Alaska (-6.7 percent), Nebraska (-4.5 percent), and Maine (-1.1 percent).

Analysis

"As expected, bankcard delinquency is again on the rise after experiencing two consecutive quarters of decline," said Ezra Becker, principal consultant in TransUnion’s financial services group. "Although financial institutions have been undertaking proactive measures to mitigate risk in their portfolios, the continued deterioration in the financial and labor markets is having a negative impact on the ability of consumers to repay their debt obligations. Those consumers with high mortgage debt (expensive first- and second mortgages with adjustable rates and /or home equity lines of credit) may opt to utilize whatever cash reserves are available to keep their houses rather than pay off any debt on the credit card obligations.

"In addition, the third quarter of 2008 saw a drop in the nation’s disposable income per capita and an increase in unemployment, putting additional burden on the consumer’s ability to repay credit card debt. However, the significant drop in energy prices that accelerated in September may have mitigated the increase in delinquency, as the diminishing demand for crude oil started to show at the local gas pump," added Becker.

Forecast

TransUnion’s forecasting models for the national 90-day delinquency rate suggest a possible flattening or minimal increase in the fourth quarter of this year as consumers take stock of the recent bad economic news and curtail their expenditures for the holiday season – at least relative to prior years. However, as economic conditions worsen and consumer confidence continues to deteriorate due to the ongoing economic crises, we see an upward trajectory in the national credit card delinquency rate for 2009 – reaching as high as 1.3 percent or 1.4 percent by year end.

As for state projections, Nevada (1.78 percent) is still anticipated to experience the highest average delinquency rate by the end of 2008, while North Dakota and Vermont are expected to show the lowest level of delinquency (0.69 percent).

TransUnion’s Trend Data database
The source of the underlying data used for this analysis is TransUnion’s Trend Data, a one-of-a-kind database consisting of 27 million anonymous consumer records randomly sampled every quarter from TransUnion’s national consumer credit database. Each record contains more than 200 credit variables that illustrate consumer credit usage and performance. Since 1992, TransUnion has been aggregating this information at the county, Metropolitan Statistical Area (MSA), state and national levels.

About TransUnion
As a global leader in credit and information management, TransUnion creates advantages for millions of people around the world by gathering, analyzing and delivering information. For businesses, TransUnion helps improve efficiency, manage risk, reduce costs and increase revenue by delivering comprehensive data and advanced analytics and decisioning. For consumers, TransUnion provides the tools, resources and education to help manage their credit health and achieve their financial goals. Through these and other efforts, TransUnion is working to build stronger economies worldwide. Founded in 1968 and headquartered in Chicago, TransUnion employs more than 3,600 employees in more than 25 countries on five continents. www.transunion.com