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Credit Card Delinquencies Down in 4th Quarter

By Eileen AJ Connelly
AP Personal Finance Writer

NEW YORK (AP) — Americans are managing their credit better as the recession deepens — possibly a sign the new era of responsibility that President Obama has been talking about is taking shape.

The number of people three months behind on bankcard payments fell 11 percent in the fourth quarter of 2008 from a year ago, while they added less than 2 percent to their balances during the holiday shopping season, according to one of the big consumer credit tracking agencies.

The percentage of consumers behind on payments by 90 days or more for their bankcards — MasterCard, Visa, American Express and Discover — fell to 1.21 percent in the fourth quarter, from 1.36 percent a year ago.

More on-time payments came even in the face of worsening job losses, the continuing foreclosure crisis and tighter credit, according to TransUnion, a business consultant known most for its credit ratings services.

Another sign of consumer responsibility: shoppers didn't spend as much on gifts they couldn't afford during the holidays as in years past. Average borrower debt — the average of all the credit cards someone holds — edged up 1.96 percent, to $5,729 from $5,619 year over year.

The numbers, while positive for individuals who are running up less debt and potentially paying fewer late fees on their credit cards, reflect difficult economic issues, like the sharp decline in retail sales and the tight credit market.

Ezra Becker of TransUnion's financial services group said the numbers show consumers recognize that they have to pay their bills on time, and use their cards less. "Consumers are taking a more conservative, and frankly a more healthy and more mature perspective on managing their credit," he said.

However, it also shows a bit of the fear inherent in the idea of losing their credit cards, which he said have become "the primary instrument for purchasing power." Consumers are paying their credit cards even while they're letting their auto loans and mortgages slide, a reverse of conventional behavior in years past, when secured loans would be paid first because people were afraid of losing their cars and homes.

"In some sense, you see consumers more interested in maintaining the good health of their credit card relationship than on their auto loan or their mortgage, because they need it to bridge the gap from paycheck to paycheck," Becker said.

And the credit crunch is also playing a part in the changing rates. Becker noted that credit card issuers have been trimming credit limits, closing accounts, increasing interest rates and getting more aggressive with their collection practices. "That has definitely met with success," he said.

Delinquency did rise substantially in the fourth quarter from the third quarter, but Becker said it is normal to see an uptick in the last three months of the year because people are stretched during the holidays. Nationally, the bankcard delinquency rate increased to 1.21 percent in the fourth quarter of 2008, up 11 percent over the previous quarter. In 2007, the fourth quarter rate was 1.35 percent, a 32 percent jump from the 2007 third quarter rate.

While the fourth quarter data showed some positive signs, however, Becker said there is concern about the recession affecting consumers payment habits, even those with good intentions. The company forecasts that credit card delinquency will jump to 1.87 percent by the end of this year.

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