New statistics released by TransUnion indicate that credit card delinquencies are at their highest rates since 2012. These rates could potentially return to the pre-2008 “Great Recession” levels as the average credit card debt continues to increase.
One of the leading reasons for the increase in missed payments and total credit card market debt is an increase of newly issued credit cards for subprime customers with lower credit scores. Credit card delinquency rates have slowly increased in the past few years, and the delinquency rates have reached the highest rate since the 3rd quarter of 2012 although it is still half the rate from 2009 when credit card delinquencies rates peaked.
Overall Missed Payment Statistics
TransUnion measures the delinquency rates for credit cards that have been open for at least six months. The current 90-day delinquency rate for cards issued in 2015 is 2.95%, an increase from 2.18% of all cards issued in 2014 and 1.50% of all originations in 2013. The overall serious delinquency rate, at least 90 days of missed payments, was 1.53% in Q3 2016. This rate is still slightly lower than the Q3 2012 rate of 1.65%, and noticeably lower than the 2009 high of 3%, but the rate is trending in the wrong direction.
In addition to the rise of delinquencies, the average national credit card debt per borrower rose from $5,229 in Q3 2015 to $5,323 in Q3 2016. That is an increase of 1.8% and includes all U.S. credit card users.
Subprime Credit Card Statistics
One reason for the uptick is the increase of subprime credit cards issued to consumers with credit scores of 660 or below. Subprime applications are at their highest levels since 2007, before the Great Recession began. Over 20 million subprime credit cards were issued in 2015, a 56 percent increase from subprime originations in 2013.
After the total credit card delinquency rate peaked in 2009, subprime accounts were the most common credit card accounts to be closed in the following years. That trend changed in 2014 when subprime originations rapidly increased. While most subprime consumers only have access to secured credit cards, with credit limits of $1,000 or less, their delinquency rates are still higher than users with average or excellent credit scores with an average credit limit of $8,000. Many will now wonder if credit companies will still continue to issue subprime credit cards at pre-Great Recession levels.
As the average credit card debt is in the $5,323, secured credit cards with a $1,000 limit or not the only reason delinquencies have risen. The subprime market might have the largest cohort delinquency rate, but, rates have risen across all credit markets and are higher in particular markets.
Delinquency Rates Are Higher in the Energy-Producing States
In addition to the subprime market, credit card delinquency rates are notably higher in states that rely on energy as a primary economic force. Almost the equivalent of the 1850s Californian “Gold Rush,” many workers flocked to the oil-rich states in the Great Plains and Gulf of Mexico region to find work in the wake of the Great Recession. Global energy prices had skyrocketed and there was a great demand for American oil and gas. Since 2015, the raw energy prices have plummeted and many workers are no longer receiving the paychecks they had up until recently.
While the case for each energy industry worker is different, TransUnion has also released statistics showing the delinquency rates in energy-rich states are significantly higher than the rest of the United States. The serious delinquency rate for all credit cards in the United States rose 6.3% from Q3 2015 to Q3 2016. But, energy-reliant states like Wyoming and West Virginia experienced increases of 15.6% and 20.4%, respectively, during the same time period. Other energy states like Texas and Oklahoma reported delinquency rate increases of 10.2% and 11.9%.
It is not just subprime borrowers that have become more delinquent in the energy states, the delinquency rate has been influenced by families with unsecured credit cards as well. And, in addition to an increase in missed credit card payments, reports earlier in the year also indicated an increase in auto loan defaults in these same states. In 2015, American consumers pushed outstanding auto loan debt back above the $1 trillion mark with a record number of automobile sales. As energy prices slid during 2015 and 2016, the delinquency rate continued to increase.
While the total credit card delinquency rate is rising nationwide, indicating that families are returning to their pre-recession spending habits and debt levels. The collapse of energy prices and an uptick in subprime customers has magnified the issue.
While the last two groups, energy states and subprime users, should be the focal point of the discussion for why delinquency rates are increasing, the discussion should be broadened to the entire country as the increase in serious delinquency isn’t limited to a handful of states. The trends are showing that, perhaps, consumers have not learned their financial lessons from 2009 and nobody quite knows what the outcome will be yet.
Author: Jeff Gitlen
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