In the first three months of this year, both credit card debt and credit card delinquency fell, according to the latest quarterly credit card analysis from TransUnion. The major credit bureau is in an ideal place to spot credit card trends becuase it maintains a massive database of consumer debt records.
“For the first time since the beginning of 2007, average credit card debt and national credit card loan delinquency (the ratio of borrowers 90 or more days past due) experienced statistically relevant quarterly declines,” TransUnion says in a press release.
According to Ezra Becker, principal consultant in the financial services group at TransUnion, the change was significant because it reversed recent trends. Over the past five years, the average credit card delinquency increased by about 11 percent from the fourth quarter to the first quarter. That advance is generally seasonal, Becker explained in a phone interview: Consumers spend too much during the holidays and give themselves a debt hangover, but they have yet to get relief in the form of their tax rebates. This year, however, delinquencies fell — making the data worth a closer look.
“Nationally, the ratio of credit card borrowers delinquent on one or more of their credit cards declined to 1.19 percent in the first quarter of 2008, down 12.5 percent over the previous period,” TransUnion says in its press release. That doesn’t mean credit card delinquency is no longer an issue, since “the total still remains higher than the same period last year (0.91 percent).”
Credit card debt declined quarter-over-quarter as well. “National average credit card debt per credit card borrower dropped 1.25 percent from the previous quarter’s $1,694 total to $1,673, though the total remains 5.6 percent higher than the same period last year ($1,584),” TransUnion said.
Becker lauds responsible consumer behavior for the declines in debt and delinquency. Amid the credit crunch, lenders are less willing to extend credit even as consumers rely on borrowed money to get themselves through tough economic times. Therefore, “consumers are putting more emphasis on managing the credit instruments that they have so they will be available to them for use,” Becker says.
This summer, delinquencies should head lower as consumers use their tax refunds and stimulus checks to pay down their debt, Becker says, but he notes that delinquencies will subsequently increase.
Although Becker cautions against drawing too many conclusions about the economy from what is admittedly volatile data, the debt and delinquency numbers are nevertheless a bright spot. In this environment, “Consumers are being more cautious with their spending and not putting themselves in a position of overspending as much as they might,” Becker says. When it comes to available credit, “you have to take care of what you have,” he adds.