Pace of Credit Card Accounts Picked up in 1Q
U.S. credit card users are getting better about making more timely payments, even as banks are increasingly issuing cards to borrowers with less-than-stellar credit.
The rate of payments at least 90 days overdue dipped in the first three months of the year to 0.73 percent, credit reporting agency TransUnion said Thursday.
That's down from 0.78 percent in the fourth quarter of 2011 and 0.74 percent in the first quarter of last year.
While the rate increased in the second half of last year, the broader trend has seen delinquency rates decline steadily since the last recession started toward the end of 2007, said Charlie Wise, TransUnion's director of research and consulting.
"We are now seeing that, when given a choice, consumers are overwhelmingly paying their bankcards before they're paying their mortgages," Wise said.
Between 1999 and 2007, the average quarterly credit card delinquency rate was 1.30 percent, said TransUnion, which culled data from a random sampling of about 27 million credit reports.
While late payments are down, cardholders have been racking up more debt.
On average, borrowers had $4,962 in credit card debt in the January-to-March period. That's down 4.7 percent from the previous quarter, as cardholders paid off purchases charged during the holiday season. But card balances grew 6.1 percent versus the first quarter last year.
The annual increase in average credit card debt is a shift from trends between 2009 and 2011, when borrowers pulled back on using credit and made an effort to slash their debt.
However, that trend has been changing in the last few quarters, as consumer confidence in the economy has shown some signs of improvement.
Another factor: The number of credit cards issued by banks over the past year has increased, along with those going to borrowers with less-than-sterling credit.
Banks consider prime borrowers to be the safest credit bet. Based on the VantageScore credit scale, those borrowers have a score between 900 and 990. Subprime borrowers, regarded as the highest-risk borrowers, are on the lowest end of the scale, with a score between 501 and 640.
The number of new cards issued to consumers last year rose by more than 20 percent versus 2010, according to TransUnion. And 24.2 percent of those cards went to people with below-prime credit scores.
That trend continued in the first three months of this year, as 24.1 percent of new cards issued in the quarter went to higher-risk borrowers.
"We expect these consumers have been making active use of their cards, because in many cases they may not have had access to cards in the past couple of years," Wise said.
One key reason banks have become more open to issuing credit cards to higher-risk borrowers is tight competition for top-rated consumers, many of whom are not signing up for additional credit. So that leaves the crop of borrowers with some blemishes in their credit history.
Still, even with the pool of subprime credit card users growing, TransUnion has forecast that severe delinquency rates on cards will remain near current low levels at least through the end of this year.