Consumers cut delinquency, open more new accounts

Americans seem to be feeling better about their finances these days, as many were able to once again cut their late payments into their credit card debts, while many opened new accounts and took on more debt.

During the second quarter, seriously delinquent credit card payments fell even as borrowers took on hundreds of dollars more in debt, and obtained new cards to increase their financing options, according to the latest quarterly report from the credit monitoring bureau TransUnion. In all, the delinquency rate – defined by the bureau as those accounts 90 days or more past due on payments – fell 13.7 percent to just 0.63 percent of all balances, down from 0.73 percent in the previous quarter.

However, that was also slightly higher than the 0.6 percent seen in the second quarter last year, the report said. Apart from that three-month period, however, delinquency hasn’t been this low since the end of 1994, when it stood at 0.61 percent.

“The national credit card delinquency rate continues to remain at the lowest levels we’ve observed in 18 years,” said Ezra Becker, vice president of research and consulting in TransUnion’s financial services business unit. “It’s a positive situation because average borrower balances have increased over the past year as new card originations have grown. These low delinquency rates reflect both continued conservatism in lender underwriting and the ongoing prioritization of card payments among consumers.”

Delinquency remains a large problem in Mississippi, where 0.97 percent of borrowers are 90 days or more behind on payments, the report said. Meanwhile, both North and South Dakota have the lowest rates in the nation at 0.36 and 0.42 percent, respectively. Massachusetts had the largest annual increase, surging to 0.71 percent, which was an increase of 39.22 percent on a year-over-year basis.

A surge in balances still not enough

Consumers took on more credit card debt during the second quarter on an annual basis, the report said. The average debt per borrower rose 5.79 percent to $4,971 this year from $4,699 in the same period in 2011. Further, it was an increase of just $9 from the first quarter of the year, a change of 0.17 percent.

Nonetheless, the most recent level remains well below the total seen in the second quarter of 2009, while the recession was still ongoing. Then, the average consumer owed $5,719, but has cut debts by more than $700 in that time.

Currently, the states with the most average credit card debt are Alaska ($7,045), Colorado ($5,728) and North Carolina ($5,619), the report said. Meanwhile, Iowa has the lowest average balance at just $3,874.

Consumers opened more credit cards

At the same time, the number of new credit cards opened in the second quarter rose about 4 percent on an annual basis, the report said. At the same time, though, the share of borrowers with subprime credit ratings who were issued new accounts fell to 26.1 percent. That was down from 27 percent in the same quarter last year, but up significantly from the 20.6 percent observed in 2010’s second quarter, when lending restrictions were significantly tighter.

Becker added that despite significant increases in subprime borrowing, we have seen delinquency rates tumble for some time, the report said. While this may seem counterintuitive, it likely shows that borrowers are generally being far more cautious about dealing with their credit card debt and now value having access to these accounts in ways they may not have in the past.

What about the future?

TransUnion also noted that its current forecasts show that credit card delinquencies will likely remain close to their current levels – allowing some fluctuations for seasonal borrowing habits – for the remainder of the year, the report said. However, this is based solely on seasonal effects and personal economic factors from a conservative forecast, and does not account for changes in underwriting standards or significant economic events.

It is important for consumers to try to keep their delinquency under control, because missed payments will not only have an effect on their finances, but also their ability to borrow in the future. In fact, 35 percent of a person’s credit score is made up solely of payment history, and just one missed deadline, even if it’s by a single day, can do significant damage to a credit rating.

If you’ve missed a payment in the past, you’ve probably seen your credit score take a bit of a hit. Fortunately, you may be able to work with a credit attorney who can help to put you back on the right path. With their help, you may be able to find unfair markings on your credit report that can have an adverse effect on your standing, and that might allow you to fix your credit.

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