Consumers continue to take their credit card borrowing more seriously.
The ratio of credit cardholders 90 or more days past due on their payments continues to drop even as issuers are extending credit to higher-risk customers, according to new data published by TransUnion.
The national credit card delinquency rate dropped to 0.63% in the second quarter ended June 30 from 0.73% the previous quarter. The card delinquency rate is at its lowest level since reaching 0.6% in last year's second quarter, TransUnion says. Previously, the last time the card delinquency rate was below its current level was in the fourth quarter of 1994, when it was 0.61%, the Chicago-based credit bureau reported Aug. 14.
Fueling the trend is cardholders' recognition that they may need their credit cards to make ends meet in case they or their spouse lose their jobs. Also, issuers have been more conservative in the card underwriting, says Ezra Becker, vice president of research and consulting in TransUnion's financial services business unit.
But issuers are starting to extend their lending to more nonprime consumers, he says.
Indeed, Becker sees the trend as a positive one because average borrower balances have increased over the past year as new card originations have grown.
Average credit card debt per borrower increased to $4,971 in the second quarter, up 6.5% from $4,699 a year earlier, TransUnion says. However, card debt remains more than $700 lower than the same period three years ago, when it was $5,719.
Total card originations grew by approximately 4% relative to the same period last year. The share of nonprime, higher-risk consumers with a VantageScore credit score lower than 700 (on a scale of 501-990) was 26.1%. This is slightly lower than a year earlier, when the percentage was 27%, but still much higher than 20.6% in the second quarter of 2010, TransUnion says.
"So as card balances go up, lenders are issuing more credit to the nonprime space," Becker says. "This is encouraging because lenders say they're comfortable in giving cards to more nonprime consumers, which are consumers who need credit to manage the disparity between their income and expenses."
TransUnion says it is maintaining previous forecast for credit card delinquencies to remain near current levels, with potentially some seasonal fluctuations, through the end of 2012.
"This forecast is good news for lenders and consumers," Becker says. "It shows consumers' efforts to ensure their relationships with lenders bear positive fruit, and it is a sound long-term strategy so they have access to credit, which affords them options in that it helps them manage their lifestyles."
How long such a trend can last is difficult to say, Becker notes.
"Some consumers will maintain their perspective, and others will not," he says. "The view of credit changes when you have income and when you don't."