TransUnion Finds Dwindling Credit Card Payments Often Leads to Delinquency

When card holders’ extra payments begin falling and their balances rise, it’s a good sign that they are at risk for serious delinquency within a year, according to a TransUnion study released Thursday.

The study, “Detecting Early Indicators of Liquidity Shortage in Managing Card Portfolio,” tracked the liquidity situations of 5.9 million card holders from September 2019 to December 2021. It compared two groups: The study group, which started the study current on card payments, but fell more than 90 days past due in payments at some point over the next 27 months, and the control group, which remained current throughout.

Consumers had a boost to their cash during the period from pandemic-related government relief programs and forbearances, allowing delinquencies to fall to record lows. However, by the end of 2021, consumer behavior began to return to normal with balances finally exceeding pre-pandemic levels by May.

In June, 500 million bank-issued credit cards were in the marketplace, up from approximately 465 million one year earlier. In that same timeframe, serious delinquency rates rose to 1.57% and average balances per consumer increased to $5,270, up significantly from 2021, but still below pre-pandemic levels.

Paul Siegfried, SVP and card and banking business leader at TransUnion, said lenders need to understand what is happening to card holders as they deal with rising interest rates, high inflation and other economic changes in their world.

“It’s important for lenders to understand changes to consumer payment behaviors sooner so they can work with consumers on payment plans or other programs that will prevent serious delinquencies down the line,” Siegfried said.

The study examined how early changes in payment behaviors can be identified in the weeks and months leading up to a first serious credit card delinquency and whether or not risk levels could be differentiated based on these changes in liquidity signals.

Over the 27-month study period, total credit card balances and total utilization rates remained relatively flat among the control group, while both saw significant growth among the study group. Consumers in the control group made larger payments to their cards relative to the minimum due, but study group card holders began to pay less.

“While those in the control group began paying more towards their card balances, those in the study group began paying less, and in many cases, falling behind,” according to a news release from TransUnion.

Study findings include:

• The median balance for the study group rose 34% by March 2020, the start of the COVID-19 pandemic, while the control group balance rose just 2% in that first six months.
• Credit card utilization (balances as percent of credit limits) rose 29 percentage points for the study group in the first six months, while it fell 2 points for the control group.
• Utilization increases began 12 months prior to the severe delinquency and accelerated in the six months before serious delinquency.
• Extra payments from the study group fell to zero within the first 15 months, while control group payments rose 19% by December 2020.
• Extra payments started to fall as early as 12 months before a study group member reached severe delinquency. All risk tiers showed declines by six months before the severe delinquency.
• Most consumers became 30 days or more delinquent three months before becoming severely delinquent, indicating that a good signal is deterioration in liquidity nine to 12 months before serious delinquency.

TransUnion also looked at a group from June 2021 to June 2022. While the original cohort had 2.7% of accounts landing in severe delinquency, 4.2% of the recent cohort fell to that mark.