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Consumers Taking on More Credit Card Debt

Consumers’ borrowing habits took a turn for the worse in the final three months of last year, as late payments and outstanding balances rose significantly. However, experts say this is in line with seasonal movements and may not indicate a new emerging trend.

The average amount of debt carried by consumers in the fourth quarter of 2012 rose 2.5 percent to $5,122 from the previous three months, when balances stood at an average of $4,966, according to new data from the credit monitoring bureau TransUnion. However, it should be noted that the totals seen at the end of last year were also down 1.6 percent from the $5,204 observed during the same quarter in 2011.

At the same time though, the national rate of delinquencies totaling 90 days or more rose to 0.85 percent of all accounts, up from 0.78 percent in the same quarter the previous year, the report said. It also increased somewhat significantly from the third quarter of 2012, when it stood at just 0.75 percent.

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“The fourth quarter traditionally results in higher credit card balances and delinquencies, much of it to do with the holiday shopping season,” said Ezra Becker, vice president of research and consulting in TransUnion’s financial services business unit. “Though serious delinquencies have risen seven basis points in the last year, average credit card debt has actually dropped, which is a sign that consumers continue to manage their credit well. Both credit card delinquencies and balances are below historic norms.”

The trends seen now are still better than norms seen in recent years, the report said. For every fourth quarter over the previous decade, average 90-day delinquency stood at 1.06 percent of all outstanding balances, and borrowers owed an average of $5,389, both of which are significantly higher than what is being observed today.

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Further, the latest findings also showed that consumers are once again steering away from opening new credit cards, as originations in the third quarter of 2012 slipped 2.4 percent on an annual basis, the report said. Further, the rate of new cards granted specifically to those with low credit ratings slipped somewhat to 30.51 percent of all accounts from the previous year’s 30.63 percent.

Consumers drastically changed their borrowing habits during and immediately following the recession, but experts have long predicted that bottomed-out delinquency rates and debts would begin climbing in subsequent years as Americans slowly regained their financial footing.

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