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Borrowers Taking on More Debt, Credit Cards

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Credit card users took on more debt and opened more accounts in the second quarter of the year, but simultaneously continued to reduce instances of significantly late payments.

Credit card delinquency of 90 days or more fell to near 14-year lows even as average outstanding balances and new account origination increased between April and June, according to the latest quarterly data issued by the credit monitoring bureau TransUnion. In all, late payments fell to just 0.63 percent of all accounts, down from 0.73 percent in the first quarter. However, while the latest number was still up from the all-time low of 0.6 percent, observed in the second quarter last year, the only other time it has been this low was the end of 1994 (0.61 percent).

Continued ability to make on-time payments may have been what led borrowers to take on more debt as they felt comfortable with their finances once again, the report said. The average amount owed by consumers rose to $4,971, up from $4,699 at the same time last year, but still considerably lower than the $5,719 seen in the second quarter of 2009.

Further, the rate at which consumers obtained new credit cards rose 4 percent on a year-over-year basis during the second quarter, the report said. And that came even as relatively fewer subprime borrowers were able to obtain this type of financing. In all, 26.1 percent of new accounts were issued to borrowers with low credit scores, down from 27 percent in the same period last year, but up substantially from the 20.6 percent in 2010’s second quarter.

“While non-prime borrowers made up a slightly smaller percentage of all new trades in this latest quarter, they continue to gain more access to credit,” said Ezra Becker, vice president of research and consulting in TransUnion’s financial services business unit. “In conjunction with the growth in the overall number of card originations in the last few years, it means that the credit card pie is bigger, and non-prime consumers are getting a bigger slice of that pie.”

Many lenders have made the decision to open more lending to subprime consumers as credit conditions have improved, both as a means of increasing their customer base and because many consumer with low credit ratings may be in a better financial position than they were a few years ago.

Image: TaxFix.co.uk, via Flickr

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