Credit card delinquency and debt both rise

While rates of late payments made into credit card balances, and those debts themselves, have improved appreciably over the last few years, there were slight upticks in both statistics during the third quarter of the year.

Severe credit card delinquency and debt per borrower rose marginally between July and September as consumers struggled to get their finances under control, according to the latest quarterly statistics from the credit monitoring bureau TransUnion. In all, the amount of credit card accounts that were 90 days or more behind on payments rose to 0.75 percent of all balances, up from the 0.71 percent observed in the same quarter last year, and 0.63 percent from the previous three-month period.

However, experts actually say that an increase of this type might show a positive effect rather than a negative, the report said. It may indicate that consumers' borrowing habits are returning to a predictable and consistent normalcy not seen in years.

"Credit card delinquencies are following a pattern similar to what we observed in 2011, with declines in the first two quarters of the year followed by an increase in the third," said Ezra Becker, vice president of research and consulting in TransUnion's financial services business unit. "That seasonal consistency is encouraging. Credit card debt trends in 2012 also are mirroring 2011, with a decrease in the first quarter followed by two increases over the next six months. With both delinquencies and debt levels remaining quite low relative to historical norms, we are confident in the continued stability of credit card usage patterns in the short term."

Changes in borrowing
During the second quarter, the rate at which Americans opened new accounts ticked upward by 3.14 percent on an annual basis, indicating consumers continued to expand their appetite for new borrowing options, the report said. Further, the percentage of riskier borrowers entering the credit market increased as well, to 29.55 percent from the 29.28 percent seen the year before. Both figures are appreciably higher than the 23.86 percent from the second quarter in 2010.

This indicates that lenders may be significantly loosening standards for new borrowers, the report said. And on some level, it may also be a cause for the increase in delinquency seen on both a quarterly and annual basis. Nonetheless, the upticks were so minor that broader access to credit shouldn't be considered a cause for concern, because it, too, shows that borrowing habits are simply becoming more predictable even as the economy continues to be somewhat uncertain.

In all, 64 percent of the nation's metropolitan areas saw increases in their delinquency rates, up slightly from the previous quarter's 62 percent, the report said.

Balances on the rise
Another habit of slightly riskier consumers is that they have a tendency to borrow more on their cards overall, the report said. This was reflected by the slight increase in outstanding per-borrower debts during the third quarter. During the three-month period, average balances rose just $25 (.5 percent) to $4,996 from the second quarter's $4,971. However, on a year-over-year basis, the increase was far more significant, growing 4.9 percent from the $4,762 observed in the third quarter of 2011.

The state with the most indebted consumers by far was Alaska, where borrowers owed an average of $7,094, the report said. The next-closest was Colorado, with an average of $5,696, and both Connecticut and North Carolina tied at $5,634. Meanwhile, Iowa led the way on low balances at just $3,883. North and South Dakota stood at $3,978 and $4,204, respectively.

North Dakota also saw the largest year-over-year decline in borrowing, as its balances fell 2.45 percent, the report said. On the other hand, borrowers in New Jersey saw their average debt increase considerably during this time, as balances rose to $5,560, up 10.46 percent from the previous year's $5,033.

Going forward?
In general, it's believed that the current levels of delinquency should stay more or less the same through the end of 2012, with a potential for seasonal upticks seen in the final three months of every year, the report said. A number of factors go into such a forecast, including consumer sentiment, income levels, employment, and so forth.

Making late payments and carrying more debt are the two factors that have the largest impact on a borrower's credit rating, as they account for a combined 65 percent of that score. As such, falling into either will be rather troublesome for any borrower's standing, but the same is true of having unfair markings on their credit report. Ordering a copy of this document can help borrowers to identify these entries, and working with a credit repair law firm may help to clear them up.