Late Payments Rise Even as Average Credit Card Debt Falls
March 01 2013
The rate of credit card payments at least 90 days overdue increased to 0.85% in the fourth quarter from 0.78% a year earlier, according to TransUnion.
That's an increase of approximately 9%. The rate also climbed 13% from the third quarter, when it was 0.75%, the firm said.
Much of the growth in late payments on credit cards in the October-December period is related to increased spending for the holiday season, said Ezra Becker, vice president of research and consulting in TransUnion's financial services business unit. Specifically, when bills arrive in January, cardholders who missed payments often start trying to catch up, and that ends up lowering the credit card delinquency rate in the first quarter.
"For people who might have overspent themselves, they might not have the money right on hand to pay, but once they start to get their tax refunds and their year-end bonuses, you see that come back into line," Becker said.
TransUnion expects the card delinquency rate will decrease slightly to 0.81% in the first three months of this year. But the forecast depends on the U.S. economy avoiding any major shocks and doesn't factor in the possible impact of higher payroll taxes or delayed tax refunds. Those factors could end up driving the card delinquency rate higher in the first quarter, Becker said.
Americans due to receive an income tax refund also may have to wait a bit longer for their check this year, because the Internal Revenue Service got off to a late start.
While many cardholders failed to keep up with payments in the fourth quarter, the average amount of debt charged by borrowers declined on an annual basis. The average credit card debt per borrower in the U.S. fell 1.6% to $5,122 from the last three months of 2011, though it grew 2.5% from the July-September quarter, TransUnion said. Though serious delinquencies have risen in the last year, "average credit card debt has actually dropped, which is a sign that consumers continue to manage their credit well," Becker said.
While higher, the late payment rate increased from historically low levels. The lowest late payment rate on TransUnion records dating back to the mid-1990s was 0.56%, set in the third quarter of 1994. More recently, it was at 0.60% in the second quarter of 2011.
The latest data show that the number of new credit cards issued in the July-September period fell 2.4% from the same stretch in 2011, coinciding with some of the largest credit card issuers scaling back the volume of mail marketing aimed at signing up more new borrowers, Becker said.
Even as card volume declined, some 30.5% of the new cards issued in the third quarter went to so-called non-prime borrowers. A year earlier, the share of new cards issued to non-prime borrowers was slightly lower at 30.63%, TransUnion said.