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The average U.S. consumer credit card chargeoff rate declined again in October as more consumers met their monthly payment due dates and the delinquency rate on late payments held steady, according to the latest data from Moody's Investors Service.
December 2
The trend of U.S. credit cardholders putting credit card payments ahead of mortgage payments that began in early 2008 shows no sign of abating in the immediate future even as the economy gradually improves, TransUnion LLC analysts say.
Despite a recent uptick in credit-card delinquency rates, the proportion of consumers falling behind on monthly credit card payments remains at near-record lows across the U.S., according to credit-bureau data TransUnion analyzed.
TransUnion's findings stand in contrast to a recent report from Auriemma Consulting Group, which said consumers are starting to put a higher priority on making mortgage payments over credit-card payments.
Auriemma conducted a survey in September of 509 U.S. credit cardholders. The findings said that 77% of consumers were giving mortgage payments the highest priority, followed by 52% who cited utility payments and 38% who cited credit cards. The study illuminated a reversal of consumer sentiment compared with a similar study the firm conducted in 2009.
TransUnion declined to comment on Auriemma's study.
Citing its data from recent years, TransUnion observed that before 2008, consumers for decades tended to pay their mortgage first "because it was their greatest asset," says Steve Chaouki, group vice president for TransUnion's financial services unit.
But the crash in home values that began in 2008, coupled with rising unemployment, caused consumers for the first time to begin putting a higher priority on making credit card payments over mortgages and auto loans.
"Consumers see that as their home values declined, credit cards represented liquidity, which is a more valuable commodity during an economic crisis," Chaouki says.
The economy may be improving, but the underlying factors that put credit cards at the top of the bill-payment hierarchy persist, he says.
"We may see the payment hierarchy revert to the more-traditional setup where people pay their mortgages first when there is some real home equity to protect, or when credit becomes so freely available that it won't be seen as a rare commodity to preserve," Chaouki says.
It "will probably be a long time" before consumer credit lines, which many lenders cut during the crisis, become so abundant that consumers feel they can put credit card bills lower on the priority list, he says.
