Consumer credit yet to hit bottom

The average credit card balance increased to $5,776 in the first quarter compared with $5,548 the previous year and more people fell behind on their bills, according to credit reporting agency TransUnion’s quarterly review of its credit files. Along with the increased borrowing came higher delinquency rates, as the percentage of borrowers 90 days past due increased to 1.32% compared to 1.19% the prior year. And the worst is yet to come.

“As expected, bankcard delinquencies increased in the first quarter both as a national average and in most areas of the country,” said Ezra Becker, director of consulting and strategy in TransUnion's financial services group. “As the recession entered its sixth quarter, we saw continued increases in average bankcard balances, as consumers struggled to meet repayment obligations in a job market that continues to deteriorate. This increase could be an indication that tax refund checks, typically used to pay down balances in during the first quarter in years past, are now being used to cover daily living expenses.”

No wonder Target became more restrictive in extending credit last year, and its credit operations suffered a $135 million fourth-quarter loss, as it was forced to increase bad debt reserves. Although national delinquency rates have increased in recent quarters, the rate is expected to increase further and eventually rival the 1.69% delinquency rate in place at the end of the 2001 recession. The current TransUnion forecast for the national 90-day delinquency rate is a continued rise throughout 2009, approaching 1.7% by year-end. Depending on the impact of various stimulus programs and the effects of unemployment, the bankcard delinquency rate’s upward climb could potentially taper off in early 2010, with a peak in late 2010 or early 2011 as increases in disposable income assist consumers with their repayment obligations.