More Credit Cards for Consumers even as Delinquency Rates Rise

Although delinquency rates remain near historic lows, the latest data shows, they are slowly starting to rise. At the same time banks are starting to untie the purse strings and have been issuing more credit cards in the last three months.

TransUnion, the third largest credit bureau in the U.S., recently reported that of the people who were issued credit cards in the last three months, 25.2% of the new customers had credit scores of less than 700. This is a strong increase from the same period last year when 23.0% of new customers, who had less than perfect credit scores, were given a credit card.

Because of the increase customers, the credit bureau is not reading too much into the bump in delinquency rates. The rise could be more just a shift in numbers than a rising trend. Ezra Becker, vice president of research and consulting in TransUnion's financial services business unit explained that banks are taking on more risk by giving cards to people who don’t perfect credit, so it is not surprising to see the increase.

“We are still well below historical norms. In fact, we're at the second lowest delinquency rate nationwide that we've seen in the past 16 years,” he said.

Charles Tran, founder of CreditDonkey, a credit card comparison website, said the fact that banks are willing to loosen their lending criteria is good news for all consumers. He pointed out that not only do people now have access to much needed credit but it also shows a growing confidence in the economy.

“We are not out of the woods just yet and we could still see a modest rise in delinquency rates but we are seeing important signs that the economy is starting to turn a corner,” he said. “This is a great time for people to work on improving their credit with a credit card.”

There are signs that delinquency rates will continue to rise in the short-term. At the same time TransUnion released their report, JPMorgan Chase reported a similar trend.

The JPMorgan Chase reported that late payments in October rose 2.55%, which is up from September’s increase of 2.53%. The rise is down considerably from 3.81% reported last year at this time. The bank also wrote off 4.18% accounts in October, which is also up from September’s increase of 4.13%.

Follow @CreditDonkey or write to Neils at neils@creditdonkey.com

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