Outstanding credit card balances at credit unions nationwide reached $36.6 billion as of March 31, up 4.7% from one year ago. The average balance on credit cards at credit unions has increased, which is in contrast to national trends.
Americans have come to rely on purchasing items with their credit cards and credit unions have offered credit cards to members since the 1970s. U.S. consumers hold 609.8 million credit cards, according to a 2009 Survey of Consumer Payment Choice conducted by the Federal Reserve Bank of Boston (the latest year for which data is available). At the end of the first quarter, credit union members had 13.8 million credit cards. The survey also found that 72.2% of all U.S. consumers had a credit card in 2009 and the average consumer with credit cards had 3.7 cards.
Credit unions have been increasing their credit card lending to members in recent years, but not all of the new accounts are going to new members. The number of credit card accounts increased 3.3% in the last year, faster than the 1.9% member growth rate. That suggests credit unions are scoring organic growth with their existing member base. Credit unions reported a credit card penetration rate of 14.7%.
|Credit Card Average Balance & Penetration Rate|
|For all U.S. Credit Unions | Data as of March 31, 2012|
|Source: Callahan & Associates Peer-to-Peer Software.|
To go along with the $36.6 billion of outstanding credit, members can also tap an additional $77.2 million in credit card lines. Credit union members are currently using 32.1% of their available credit, which is up from 27.7% in 2007 before the recession began.
One explanation for the increase in utilization rate, which is outstanding credit divided by available credit, is that credit unions are not issuing credit as fast as members are using it. Since 2007, outstanding credit card balances increased 38.6% while the amount of available credit only increased by 11.8%. As a comparison, banks have a utilization rate of 17.1% in the first quarter. Credit unions may be more conservative than banks in the amount of credit they issue to members as a result of the recession, giving banks a higher utilization rate.
Average balances on credit cards have also increased in recent years. The average balance for a credit card loan is typically smaller than other loans due to their revolving balance nature, but credit unions can profit from their higher interest rates. As of March 31, the average credit card balance nationwide was $2,645. This is up 1.4% from the average balance of $2,609 last year.
With more members using more of the credit available to them, asset quality becomes more of a concern for credit unions. Until the 1990s the most common type of loan at credit unions was a signature loan, a type of unsecured loan. Unsecured loans pose a risk because, unlike traditional loans like mortgages and autos, which now make up the bulk of the loan portfolio, they are not tied to any tangible asset.
Credit unions have successfully reduced their credit card delinquencies as the economy continues to recover, and they now have a lower delinquency rate than mortgages. The delinquency rate fell 35 basis points over the last year to reach 1.01%, down from a peak of 2.06% in December 2009. Along with the fall in delinquency, credit card charge-offs also fell. The harge-off rate of 2.59% in the first quarter was down 109 basis points from last March.
The improving asset quality, coupled with the rise in the utilization rate over the last few years, has strengthened credit union’s credit card portfolios. Given the consumer’s ever-growing dependency on credit, credit unions can likely look forward to continued growth in this area of the loan portfolio.