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Credit Card Late Payments Decline for Third Quarter


Consumers taking back control of debt.

Consumers continue to take control of their debt as the delinquency rate on credit cards heads toward 1%.

Customers making late payments on bank-issued cards like those bearing MasterCard (MA) and Visa (V) logos fell to 1.1% for the June-to-September period, down 5.98% over the previous quarter, according to credit reporting agency TransUnion.

The decline is significant not just for its size but also for its timing, since delinquency rates usually rise in the third quarter from the prior period, said Ezra Becker of TransUnion's financial services group. Taken together with the more than 11% decline seen between the first and second quarters, the results indicate that consumers are getting better at handling their debt. (See Going For Broke… And Back.)

In contrast with where consumers stood one year ago, the third-quarter delinquency rate was basically flat with the 2008 third quarter, when 1.09% of card payments were 90 days or more past due. TransUnion measures credit card delinquencies at 90 days because three months is considered an indicator that the card holder will default, since it is difficult to make up that many missed payments.

Credit card delinquencies were highest in Nevada (1.98%), Florida (1.47%), Arizona (1.35%), and California (1.33%), the states hardest hit by the housing crisis. Rates were lowest in North Dakota (0.66%) and South Dakota (0.70%).

TransUnion figures showed the average balance on outstanding bank cards drifted down to $5,612 from the previous quarter's $5,719, and from $5,710 in the 2008 third quarter.

One reason for consumers to pay more attention to their credit cards was worry over potential job losses, as the unemployment rate climbed toward double-digits during the third quarter. It reached 10.2% last month.

Becker said cutbacks in credit availability and higher interest rates also played a role in cutting the delinquency rate. While the fear of having cards shut down and anger over the moves banks have made can't be easily measured, there's anecdotal evidence that those emotions played into the improvement as well.

Becker said lower savings rates in the third quarter also contributed to pushing down delinquencies, as people shifted from socking money away in the bank to paying down their debt.

The personal savings rate in September was 3.3%, compared with 3% in August and 4% in July, government statistics show. In May, the rate jumped to 6.9%, its highest point since December 1993.

The decline in credit card delinquency follows TransUnion data last week that showed the pace of growth for mortgage delinquencies also slowed in the third quarter.

It's too early to tell how the recession has affected consumer behavior long-term, Becker said, but the holiday shopping season will provide some clues. Last year, consumers cut back sharply during the holidays. The National Retail Federation, a retail trade group, expects total holiday sales will drop 1% from last year.

Retailers such as Walmart (WMT) and Best Buy (BBY) are already promoting Black Friday specials. Last week, J.C. Penney (JCP) CEO and Chairman Myron Ullman III expressed optimism his stores would fare well with frugal consumers. (See J.C. Penney CEO Bullish on Recession and True Luxury: How to Have a Rich Holiday.)

Also in play are strict new credit card regulations set to take effect in February. Banks have cut back on the number of cards they have issued and the amount of credit available ahead of that law. Becker said the law will likely lead to the creation of new credit products, and consumers will choose cards based not only on interest rates, but other features.

"The landscape of card lending is going to change fundamentally," Becker said. (See Can My Credit Card Company Do That?)

TransUnion's statistics are culled from approximately 27 million anonymous, randomly sampled individual credit files.

Copyright 2009 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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