New data from TransUnion suggests that even as Americans charge more purchases to their credit cards, they are making payments on time and handling their debt responsibly, as the rate of credit card delinquencies remains close to last year’s 18-year low.
In the third quarter of 1994, long before the most recent recession, credit card delinquencies were at a rock-bottom rate of 0.56 percent, according to numbers released Tuesday by TransUnion, one of the three major credit reporting bureaus in the US. Last year, the rate dropped to 0.60 percent, the lowest it had been since that 1994 low.
This year, the number crept up to 0.63 percent, still an impressively low rate, considering that many Americans are still recovering from the recession and job growth slowed considerably in the second quarter, with an average of only 75,000 jobs added across the nation. July’s job news was a bit better, with 163,000 jobs added.
“Will that be cash or charge?”
More people are apparently answering the question “will that be cash or charge?” with a slide of their credit card, as credit card debt rose around six percent in the second quarter of 2012, compared with the same time period in 2011. For a household carrying $5,000 in debt (the average US household credit card debt is $4,971) that translates to $300 more in credit card debt over the last year.
Credit card balances that stay the same or get higher can be the result of two different scenarios: people using the card to make more purchases, charging more than they pay each month, or people paying only the minimum balance on a high-interest-rate credit card, causing the balance to rise even as they make payments. It could be that although credit card holders are making their payments on time and not defaulting on their card agreements, they are simply unable to chip away at a balance with a high APR.
“People can pay their debt off much faster, and pay less interest, if they transfer their balances to a low or zero-percent interest credit card,” says Michael Germanovsky, editor-in-chief of Credit-Land.com.
Anyone struggling to make a dent in their household debt should look into transferring their balance to another credit card with a good balance transfer off. Tools like the Balance Transfer Calculator on Credit-Land.com show exactly how much people can save when they transfer a balance.”
More Credit for All
Another factor in the increased amount of credit card debt is the rise in lending to subprime borrowers – people with credit scores in the 500-650 range. Banks have traditionally been reluctant to extend lines of credit to people with poor credit history, but recently that is changing, as banks compete for customers.
During the second quarter of this year, 26.1 percent of new credit cards issued went to people with credit scores of less than 700. Ezra Becker, vice president of TransUnion’s financial services business unit, put it this way: “The credit pie is bigger and non-prime consumers are getting a bigger slice of that pie.”
If that credit pie is made of cash-back bonuses, travel rewards, and zero-percent APR introductory offers, it sounds pretty sweet to us.
TransUnion predicted that delinquency rates would remain low at least through the end of this year, in spite of the rise in lending to subprime borrowers.