The calm before the credit storm

Delinquency trends in Target’s credit card portfolio have held steady for several months now, and that was the case again in October. For the past three months, accounts 60 days past due have accounted for 4.9% of the receivables portfolio, and for the past four months accounts 90 days past due have accounted for 3.5% of the portfolio. Both figures are at their lowest levels of the year. In the case of the 60-day figure, it is well below the current year peak of 6.1% seen back in February and still lower than the 6.6% delinquency rate experienced in November 2009. The same is true of the 90-day figure, which is well below the 4.5% figure seen in February and the 4.7% rate seen last November.

The stabilization of delinquency rates heading into the peak period for the holiday spending suggests consumers have used credit more responsibly this year and bodes well for November and December sales. Consumers don’t get all the credit though. Target tightened up credit limits to prevent people from getting overextended and it wrote off the balances of some deadbeats which favorably impacted delinquencies rates. Whatever the source of improvement, delinquency rates heading into the holidays look a lot better than they did at this time a year ago.

The true test of how well shoppers have learned to manage their credit accounts in addition to how well Target has learned to assess credit risk in its portfolio will come next springs when those who fail to pay for charges incurred during November and December begin showing up 60 or 90 days past due.