While Americans remain largely committed to reining in their personal spending, their credit card use—and the debts they owe on those cards—rose between July and September. TransUnion, one of the ‘Big Three’ credit reporting agencies (being Experian, Equifax, and TransUnion itself), reported that the average credit card debt per borrower in the U.S. grew 4.9 percent from last year—hitting $4,996.
And we’re not just carrying bigger balances, we’re also paying later. The rate of credit card payments 90 days overdue or greater rose to 0.75 percent, up from 0.71 during the same time—the third quarter—last year. In the second quarter of last year, the rate stood at 0.60 percent as consumers cracked down on themselves and anted up their payments—often at the expense of mortgage payments or other expenditures.
That trend—paying credit card debts before other debts—seems to be holding pretty steady. It’s also important to note that, despite the rising late payment rate, it’s coming up from historically low levels. The lowest rate, according to TransUnion records, came in the third quarter of 1994, when 90-day-late or more payments were at 0.56 percent.
Credit Card Debts and Late Payments: Seasonal Factors
As most probably know, certain seasonal factors play a major role in the credit card debt cycle.
For instance, in the latter part of the year, during midsummer and fall, many people take their vacations or go back-to-school shopping—or both.
And come late fall and winter, of course, many splurge on holiday shopping for all manner of things they’ve been eyeing all year. During these times, debts tend to naturally increase.
But after the New Year, a certain personal finance ‘spring cleaning’ usually takes place as consumers start paying down the larger-than-normal debts they’ve racked up during the winter months.
Credit Card Debt and Consumer Confidence
Another potential reason people are using their plastic more is because of growing confidence in the state of the economy.
Now, with major hurdles like the tax-related ‘Fiscal Cliff’ and potentially higher gas and other energy prices on the immediate horizon, it’s tough to say if that confidence will last—but with improved hiring statistics in August and September, some consumers may very well have been peeking their heads out, feeling a little better about buying things they need or want.
And there’s another factor that could be playing a role in increased credit card debt and later payments to go along with it—more and less-able credit card users.
Credit Cards Going to Higher Risk Users
3.1 percent may not sound like much, but when that represents the total number of new cards issued by banks in the second quarter from the year previous—it’s significant.
And data shows that banks have been returning to their old ways, issuing more cards to borrowers with sub- or non-prime credit. All told, 29.6 percent of the cards issued by lenders in the third quarter went to these non-prime cardholders—which necessarily entails a greater risk of late payments or outright non-payments.
Are the banks repeating the mistakes of the past? Maybe, but it appears they feel they have little choice in the matter. With incredibly tight competition for potential customers with top-rated credit, (many of whom have decided not to expand their credit card usage at the moment), the low-hanging fruit has been picked—so now they’re willing to take greater risks.
Still, despite the greater risk, TransUnion expects extreme cases of credit card payment delinquency rates to remain at roughly their current levels into the fourth quarter.
So, are consumers ready to take on more credit card debt? Are you? Or is this a gradual return to the ‘bad old days’ for folks who can’t afford it? Let us know your thoughts.