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More Consumers Pay Down Credit Cards, but Skip Mortgage Payments

by Barbara Marquand

In the wake of rising unemployment and falling home prices, consumers are changing how they're dealing with credit card debt, according to industry analysts.

Usually credit card delinquencies go up with jobless rates. But in the tough economy of the last couple of years, consumers have paid down their credit card debt and in some cases chosen to pay their credit cards before their mortgages.

New Credit Card Trends

Unemployment levels during the recession of 2001 didn't approach the levels seen in 2009 and early 2010, yet credit card delinquencies rose by almost 25 percent that year, notes Transunion analyst Ezra Becker in a press statement. But during the recent recession, credit card delinquency rates haven't budged past the 1.36 percent level of the fourth quarter of 2007.

Meanwhile, Transunion reports, average credit card debt fell by 3 percent from the third to fourth quarter of 2009 and was down 5 percent at the end of the year, compared to the same period in 2008.

Becker says this is due in part to a small but growing number of people choosing to walk away from their mortgages and stay current on their credit card bills. Transunion reported that mortgage delinquencies rose for the 12th straight quarter, jumping 10 percent at the end of 2009 over the previous three months. Year-over-year mortgage delinquencies were up 50 percent.

High Credit Scorers More At Risk for Mortgage than Credit Card Default

FICO, which produces the FICO credit score, announced in February 2010 that mortgage default risk for consumers with high credit scores had surpassed risk for defaulting on credit cards, even though credit card debt is unsecured, and mortgage default leads to foreclosure.

In 2005, credit cards were three times more likely to be delinquent than mortgages. In 2008 and 2009, bank cards were only 1.6 times more likely to be delinquent than mortgages, FICO's analysis found. For those with high credit scores, the default risk was actually higher for mortgages than credit cards. In 2009, 0.3 percent of consumers with FICO scores between 760-789 defaulted on real estate loans, compared to 0.1 percent who defaulted on bank cards, FICO said.

Transunion projects the 90-day credit card delinquency rate will fluctuate slightly and come in at below 1.2 percent at the end of 2010. Nevada is expected to have the highest delinquency rate at the end of the year at 1.96 percent, and Alaska is projected to have the lowest delinquency rate of 0.64 percent, according to Transunion.

Published 09/21/10 (Modified 07/09/14)

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