Credit Card Delinquencies Drop As Charge-Offs Continue to Rise

This decline in the index delinquency rate could reflect several possible developments, but a likely cause could be increased efforts on the part of creditor recovery departments in response to the current credit environment.  With increasing charge-offs across a broad spectrum of credit types, heightened pre-charge off recovery efforts is the most likely cause of the dip in delinquencies.

Hitting on a similar note as the results of the CCQI, for the first time since the beginning of 2007 average national credit card loan delinquencies – defined as the ratio of borrowers 90 or more days past due – experienced a relevant quarterly decline, according to TransUnion’s quarterly credit card analysis.  Nationally, the ratio of credit card borrowers delinquent on one or more of their credit card accounts declined to 1.19 percent in the first quarter, down 12.5 percent from the previous quarter.

Though a statistically significant decline from the ratio of delinquency seen in the fourth quarter of 2007, the first quarter 2008 total still remained higher than the previous year’s first quarter ratio of 0.91 percent.

This development may signal, as stated by Ezra Becker, principal consultant in TransUnion’s financial services group, that “consumers have begun to take stock of their overall debt and begun to catch up on their repayment schedules.”

Another possibility is that consumers have continued to shift their payment hierarchies and have placed a greater emphasis on making their credit card payments.

In addition, although the CCQI in April witnessed a moderate decline, the overall rate of 4.4 percent was still almost 19 percent higher than the 3.7 percent delinquency rate reported for April of 2007.  The 4.4 percent rate was also an increase of almost 13 percent from the 2007 overall average of 3.9 percent.

As a signal that difficult times were likely to continue, TransUnion stated that it expected the delinquency rate to edge back up for the remainder of the year as increases in fuel prices would continue to add to the overall financial burden of consumers.

Dimitri Michaud analyzes trends in strategic receivables management within the consumer finance sector, including the banking, credit card and mortgage markets. He conducts research, writes publications and hosts a regular blog on insideARM.com for Kaulkin Media.