TransUnion.com Quarterly Credit Card Analysis for 2Q2008

Statistics

The recent first-quarter drop in average credit card debt was temporary, as data from second quarter 2008 shows a slight increase across the board geographically. National credit card debt per credit card borrower increased 2.63 percent to $1,717 from the previous quarter's $1,673, and 8.6 percent compared to the second quarter of 2007 ($1,581). The highest state average card debt per credit card borrower was in Alaska at $2,494, followed by Tennessee at $2,109 and Alabama at $2,015. The lowest average credit card debt per credit card borrower was found in Iowa ($1,281), followed by North Dakota ($1,318) and South Dakota ($1,388).

The steepest increases in average credit card debt over the previous quarter occurred in the District of Columbia (6.62 percent), Alaska (4.84 percent) and Tennessee (4.75 percent). Alabama experienced the smallest increase in its average credit card debt (0.49 percent), followed by North Carolina (0.73 percent) and West Virginia (0.82 percent).

On a positive note, the national credit card delinquency incidence rate (the ratio of borrowers 90 or more days past due) continued to decline for the second quarter in a row.

Nationally, the ratio of credit card borrowers delinquent on one or more of their credit cards declined to 1.04 percent in the second quarter of 2008, down 12.6 percent over the previous quarter. However, on a year-over-year basis the national delinquency incidence rate has risen 14.3 percent from 0.91 percent in the second quarter of 2007. Incidence of delinquency was highest in Nevada (1.72 percent), followed closely by Florida (1.34 percent) and Mississippi (1.30 percent). The lowest credit card delinquency incidence rates were found in North Dakota (0.59 percent), Vermont (0.68 percent) and Utah (0.70 percent). Quarter-over-quarter delinquency incidence rates dropped across the board. Nevada experienced the smallest drop in delinquency (-1.15 percent), while the District of Columbia's delinquency incidence rate dropped the most (-28.2 percent) from the previous quarter.

Analysis

"A number of factors may be in play that could explain the recent downward trend in the national bankcard delinquency rates," said Ezra Becker, principal consultant in TransUnion's financial services group. "First, the Federal Reserve Board's Senior Loan Officer Opinion Survey on Bank Lending Practices (updated August 11, 2008) shows that many financial services institutions have tightened their consumer lending policies in 2008 relative to where they were in at the same time last year, the effects of which are now becoming increasingly apparent in delinquency statistics.

"From the consumer side, the improvement in median household income over the quarter allowed consumers to make further inroads into paying off past-due debt," added Becker. "Furthermore, the IRS has reported that consumers had been filing income tax returns earlier this year; the benefit of early tax refunds as a result of early filings can in part be seen in these improved credit card delinquency statistics in the second quarter."

According to a February consumer survey by TransUnion's TrueCredit.com, more than four in ten respondents (42 percent) said they would pay down debt with the rebate, while 20 percent indicated they would save the money and 16 percent stated would buy something they consider necessary. Only five percent said they would splurge. "The lower delinquency statistics indicate that many consumers did in fact use their economic stimulus checks, in part, to pay down past-due credit card debt. However, with most 'big-box' stores meeting or exceeding financial analyst expectations during the quarter, and considering the increase in credit card balance statistics over the quarter, it seems that a significant portion of those rebates did indeed find their way back into the economy," continued Becker.

Forecast

TransUnion forecasts the national 90-day delinquency rate may likely continue its downward slide next quarter; however, it is predicted to be at 1.10 percent by year's end. "Gas prices will continue to add to the overall financial burden on the consumer at least through the end of the summer. In conjunction with fall/winter holiday seasonality effects, this will contribute to an overall increase in delinquency through the fourth quarter," Becker added.

As for state projections, Nevada (1.8 percent) is still anticipated to experience the highest average delinquency rate by the end of 2008, while North Dakota is expected to show the lowest level of delinquency (0.6 percent).

The source of the underlying data used for this analysis is TransUnion's Trend Data, a one-of-a-kind database consisting of 27 million anonymous consumer records randomly sampled every quarter from TransUnion's national consumer credit database. Each record contains more than 200 credit variables that illustrate consumer credit usage and performance. Since 1992, TransUnion has been aggregating this information at the county, Metropolitan Statistical Area (MSA), state and national levels.