- The Washington Times - Tuesday, November 24, 2009


Consumers got more serious about paying down their credit card debt this past summer, a time when delinquencies usually to go up.

Cardholders making late payments on bank-issued cards such as those bearing MasterCard and Visa logos fell to 1.1 percent for the July-to-September period, down from 1.17 percent in the previous three months, according to credit reporting agency TransUnion.

The decline is significant because of its timing. Delinquency rates usually rise in the third quarter from the prior period as people spend on summer vacations and back-to-school shopping, said Clifton O’Neal, a TransUnion spokesman.

The latest quarter marks the first time in a decade the delinquency rate dropped in the third quarter from the preceding quarter, according to the TransUnion analysis.

Delinquency rates typically seesaw between quarters. That means the rate typically rises in the first and third quarters, and falls in the second and fourth quarters.

The usual rise in delinquency rates might not happen this first quarter either, however, Mr. O’Neal said.

“Credit cards are a main source of liquidity for people, and we’re seeing that they’re trying to maintain a good relationship with their banks,” Mr. O’Neal said.

Delinquencies, which are payments at least 90 days past due, are an indicator that cardholders will default on the debt.

The third-quarter delinquency rate was basically flat with the third quarter of last year, when 1.09 percent of card payments were 90 days or more late. A payment that is three months past due is an indicator of a coming default, since it is difficult to make up that many missed payments.

Credit card delinquencies were highest in Nevada (1.98 percent), Florida (1.47 percent), Arizona (1.35 percent) and California (1.33 percent), the states hardest hit by the housing crisis. Rates were lowest in North Dakota (0.66 percent) and South Dakota (0.70 percent).

TransUnion figures showed the average balance on outstanding bank cards fell to $5,612 from the previous quarter’s $5,719, and from $5,710 in the 2008 third quarter.

One reason for consumers to pay more attention to their credit cards was worry over potential job losses, as the unemployment rate climbed toward double-digits during the third quarter. It reached 10.2 percent last month.

Ezra Becker of TransUnion’s financial services group, said cutbacks in credit availability and higher interest rates also played a role in cutting the delinquency rate. While the fear of having cards shut down and anger over the moves banks have made can’t be easily measured, there’s anecdotal evidence that those emotions played into the improvement as well.

Mr. Becker said lower savings rates in the third quarter also contributed to pushing down delinquencies, as people shifted from socking money away in the bank to paying down their debt.

The personal savings rate in September was 3.3 percent, compared with 3 percent in August and 4 percent in July, government statistics show. By comparison, in May the rate jumped to 6.9 percent, its highest point since December 1993.

It’s too early to tell how the recession has affected consumer behavior in the long term, Mr. Becker said, but the holiday shopping season will provide some clues. Last year, consumers cut back sharply during the holidays. The National Retail Federation, a retail trade group, expects total holiday sales to drop 1 percent from last year.

Also in play are strict new credit card regulations set to take effect in February. Banks have cut back on the number of cards they have issued and the amount of credit available ahead of that law. Mr. Becker said the law will likely lead to the creation of new credit products, and consumers will choose cards based not only on interest rates, but other features.

“The landscape of card lending is going to change fundamentally,” Mr. Becker said.

TransUnion’s statistics are culled from about 27 million anonymous, randomly sampled individual credit files.

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