Statistics
Average bankcard borrower debt (defined as the aggregate balance on all bank-issued credit cards for an individual bankcard borrower) inched upward nationally 0.33 percent to $5,729 from the previous quarter's $5,710, and 1.96 percent compared to the fourth quarter of 2007 ($5,619). The highest state average bankcard debt was in Alaska at $7,466, followed by Nevada at $6,638 and Tennessee at $6,560. The lowest average bankcard debt was found in Iowa ($4,267), followed by North Dakota ($4,414) and West Virginia ($4,555).
The steepest increases in average bankcard debt over the previous quarter occurred in Arkansas (4.2 percent), Mississippi (3.0 percent) and South Carolina (2.9 percent). Alaska experienced the largest drop in its average bankcard debt (-4.6 percent), followed by the District of Columbia (-2.7 percent) and Washington (-1.6 percent).
Nationally, the bankcard delinquency rate (the ratio of bankcard borrowers 90 days or more delinquent on one or more of their bankcards) increased to 1.21 percent in the fourth quarter of 2008, up 11 percent over the previous quarter. This is in line with seasonal trends in the fourth quarter historically. Incidence of delinquency was highest in Nevada (2.04 percent), followed closely by Florida (1.71 percent) and Arizona (1.54 percent). The lowest bank card delinquency incidence rates were found in Alaska (0.57 percent), North Dakota (0.70 percent) and Vermont (0.75 percent). Two states showed a decline in their quarter-over-quarter delinquency incidence rates: Alaska's delinquency rate dropped the most (-31 percent), followed by South Dakota (-1.3 percent). Although the drop in delinquency in Alaska seems dramatic, it is primarily due to the fact that delinquency in Alaska was relatively low to begin with at 0.83 percent in the 3rd quarter.
Analysis
The relatively small increase in bankcard debt validates that consumers' actions during the 2008 holiday period were consistent with responses to a survey recently conducted by TrueCredit.com. The TrueCredit.com 2008 fourth quarter survey on holiday spending found that a majority of consumers (54 percent) planned to spend less during the 2008 holiday season than they did in 2007. Many respondents (45 percent) said they were controlling their holiday budget by spending less per person this past holiday season, while an overwhelming majority (73 percent) stated they would use cash and savings to finance their holiday purchases, with only 18 percent planning to use their credit cards.
"Bankcard delinquencies increased in the fourth quarter both as a national average and in most areas of the country," said Ezra Becker, director of consulting and strategy in TransUnion's financial services group. "This is primarily a seasonal effect. Yet with increased unemployment rates, lower consumer confidence and less per capita disposable income, one might expect a much larger spike in card delinquency - clearly, consumers are reaching the limits of their liquidity. The fact that we have not seen such a spike is evidence of two effects: the first is that the aggressive measures financial institutions have taken to mitigate risk in their card portfolios are bearing fruit. The second is that consumers, who have lost a great deal of liquidity with the closing of home equity lines of credit and reduced card credit limits, have become more conscientious in protecting those credit instruments still available to them and are making every effort to pay their credit card bills on time. In fact, the national average credit card delinquency rate decreased 11 percent (1.36 to 1.21 percent) compared to the 4th quarter of 2007. So while it certainly does not yet signal a turnaround in the economy, the trend in card delinquency does indicates that both consumers and risk managers are actively working to control card delinquency, and are meeting with some success."
"So how does the current rise in bank card delinquency compare to the 2001 recession?" continued Becker. "Although that recession was short by most standards (March of 2001 - November 2001), the bank card delinquency rate increased by almost 10 percent during that period. In comparison, we see that the national average credit card delinquency rate has already increased by 18 percent since the current recession began in December 2007, with future trends not particularly optimistic."
Forecast
The worsening economic environment prompted a revision to our long term forecasts for credit card delinquency rates. TransUnion's forecasting models for the national 90-day delinquency rate predict that credit card delinquencies will continue to rise in 2009, potentially moving near 1.8 percent by year end. If the administration's bailout package gains sufficient traction, the credit card delinquency rate could peak in early 2010 and begin to move downward as the unemployment rate begins to fall and the drop in disposable income levels off.
