Average credit card debt falls, late payments rise

LOS ANGELES — Ramped-up holiday season spending typically keeps some borrowers from making timely payments on their credit cards in the last three months of the year, and 2012 was no exception.

The rate of credit card payments at least 90 days overdue jumped to 0.85 percent in the fourth quarter from 0.78 percent a year earlier, credit reporting agency TransUnion said Wednesday.

That’s an increase of about 9 percent. The rate also climbed 13 percent from the third quarter, when it was 0.75 percent, the firm said.

Much of the growth in late payments on credit cards in the October-December period is due to increased spending for the holiday season, said Ezra Becker, vice president of research and consulting in TransUnion’s financial services business unit.

When the bills arrive in January, many cardholders who missed payments start taking steps to catch up, which ends up lowering the credit card delinquency rate in the first quarter.

“For people who might have overspent themselves, they might not have the money right on hand to pay, but once they start to get their tax refunds and their year-end bonuses, you see that come back into line,” Becker said.

Still, that task is more difficult this year because most paychecks have been reduced since Congress and the White House allowed a two-year reduction in Social Security payroll taxes to lapse at the end of December.

In addition, Americans due to receive an income tax refund may have to wait a bit longer for their check this year, because the Internal Revenue Service got off to a late start.

TransUnion anticipates that the card delinquency rate will decrease slightly to 0.81 percent in the first three months of this year. But that forecast hinges on the U.S. economy avoiding any major shocks and doesn’t factor in the possible impact of higher payroll taxes or delayed tax refunds.

Those factors could end up driving the card delinquency rate higher in the first quarter, Becker said.

While many cardholders failed to keep up with payments in the fourth quarter, the average amount of debt charged by borrowers declined on an annual basis.

The average credit card debt per borrower in the U.S. fell 1.6 percent to $5,122 from the last three months of 2011, though it grew 2.5 percent from the July-September quarter, TransUnion said.

Though serious delinquencies have risen in the last year, “average credit card debt has actually dropped, which is a sign that consumers continue to manage their credit well,” Becker said.

During the last recession, many Americans reined in spending in favor of paying off debt, particularly credit card balances. The housing downturn also prompted many homeowners to make paying their credit card accounts on time a priority at the expense of other financial obligations, such as their mortgage payments.

While higher, the late payment rate increased from historically low levels.

The lowest late payment rate on TransUnion records going back to the mid-1990s was 0.56 percent, set in the third quarter of 1994. More recently, it was at 0.60 percent in the second quarter of 2011.

Although many cardholders have kept their credit card debt relatively low since 2010, TransUnion has forecast that average credit card debt will rise by roughly 8 percent to $5,446 by the end of this year — the highest level in four years.

One factor in the increased late-payment rate is that banks have been issuing more credit cards to borrowers with less-than-sterling credit.

Data on the number of new credit card accounts opened by consumers lags by a quarter, so the most recent figures that TransUnion has are from the third quarter of last year.

The latest data show that the number of new credit cards issued in the July-September period fell 2.4 percent from the same stretch in 2011, coinciding with some of the largest credit card issuers scaling back the volume of mail marketing aimed at signing up more new borrowers, Becker said.

Even as card volume declined, some 30.5 percent of the new cards issued in the third quarter went to so-called non-prime borrowers. A year earlier, the share of new cards issued to non-prime borrowers was slightly lower at 30.63 percent, TransUnion said.

In the VantageScore credit rating scale, consumers with a score lower than 700 on a scale of 501-990 are considered non-prime borrowers.

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