TransUnion's Credit Risk Index (CRI) Continues to Decrease, Signaling Improved Consumer Credit Risk Conditions
CHICAGO, IL--(Marketwire - September 8, 2010) - TransUnion's proprietary Credit Risk Index continued its decline in the second quarter of 2010, indicating that consumers in the U.S. are less of a credit risk than in previous quarters. At the end of the second quarter of 2010 the TransUnion CRI for the U.S. decreased 0.9 percent and now stands at 127.66. The TransUnion CRI decreased nationally 117 basis points (127.66 from 128.83), which was more than double the decrease observed between the fourth quarter of 2009 and the first quarter of 2010.
This decrease is the second decline in as many quarters and is a harbinger of the moderate declines in delinquency rates across all sectors which TransUnion reported in August. Paradoxically, the mean average generic credit score for the U.S. decreased during the same period.
"While tracking and reporting the average credit risk score may seem like a convenient and easy approach to understanding the general direction of consumer credit markets, the simple average credit score can be misleading when it's applied to a defined geography. This is what occurred during the second quarter of 2010. Credit scores were designed for individual assessment of credit risk," said Chet Wiermanski, global chief scientist at TransUnion. "This is why TransUnion developed the Credit Risk Index, which is a stronger leading indicator of consumer credit risk and is much more highly correlated to consumer delinquency rates than the average credit score or the average credit score of a business' customer base."
On a year-over-year basis, the CRI now stands five percent lower than it did at the end of the second quarter of 2009. At the end of the second quarter in 2010, 46 states and the District of Columbia experienced declines in their respective credit risk indices, signaling that a broad improvement in consumer credit conditions is finally taking root. Only Alaska, Hawaii, Idaho and North Carolina experienced increases in their credit risk indices; however, it is important to note that all four states have a credit risk index below the national index.
"Based upon the six-month trend within the Credit Risk Index, in conjunction with underlying credit condition shifts reported within TransUnion's Trend Data repository of anonymous credit information, it is evident that the fundamental improvements consumers have made toward managing their credit is making a difference in convincing lenders to revive their credit marketing efforts," added Wiermanski.
On a state basis, the order of states with the highest CRI changed slightly with Nevada (166.22) surpassing Mississippi (162.88), followed by Texas (161.51). Consistent with previous quarters, the least risky states are concentrated in the Upper Midwest, with North Dakota coming in at 80.47, and Minnesota at 89.84. Mississippi, North Dakota, Nebraska and Alabama experienced CRI declines of two percent or more.
"We are optimistic that, short term, the Credit Risk Index will to continue to experience small declines. Consumer delinquency rates should continue to decrease as employment conditions improve. Long term, we are encouraged by the great lengths consumers have taken to reduce their debt burden, which possibly represents a fundamental paradigm shift in consumer behavior," said Wiermanski. "After experiencing the most difficult economic times in two generations, it appears that consumers are relearning how to manage their existing credit obligations and live within their means."
CRI Analysis on University Cities
From a market applicability perspective, TransUnion analyzed the cities where the main campuses of 10 out of the top 20 largest public universities were located to determine their credit risk levels. The analysis found that cities that have a university were 12.5 percent less risky than the largest city in the state. University cities' average CRI was 116.13 compared to 144.65 for the largest cities. A value of more than 100 represents a higher level of relative risk.
From a mortgage delinquency perspective, the average 90-day mortgage delinquency rate (the ratio of borrowers 90 or more days past due) for university cities was 5 percent, compared to 8.9 percent, 79 percent higher than the largest cities within the state.
"One can initially surmise from this analysis that university cities have fared better during this past recession than other large cities within their state," said Wiermanski. "A relatively stable employment picture and a captive consumer base with disposable income are two reasons driving these results. Add to that the fact that many established and retired adults tend to gravitate to university areas because of cultural and literary offerings universities provide the community and one can see how this would have a positive impact on the overall risk level."
The following cities were used in the analysis: Columbus and Cleveland, Ohio; Orlando and Miami, Florida; Austin and Houston, Texas; Gainesville and Miami, Florida; College Station and Houston, Texas; East Lansing and Detroit, Michigan; Tampa and Miami, Florida; State College and Philadelphia, Pennsylvania; Boulder and Denver, Colorado and Bloomington and Indianapolis, Indiana.
The Credit Risk Index is defined as the weighted average probability of 90-day delinquency or worse among consumers in a given region relative to the nation as a whole. The Credit Risk Index uses the fourth quarter of 1998 as a baseline for comparison. Therefore, it measures changes in consumer credit score distributions relative to the national distribution and delinquency rates as a whole at the end of 1998.
TransUnion considered 1998 as a representative year of credit performance within the usual dynamic of the historical credit cycle. A value of more than 100 represents a higher level of relative risk. For comparison purposes, the Credit Risk Index in recent years has generally ranged between 110 and 120, experiencing a one- or two-point shift between quarters.
TransUnion's Trend Data Database
The source of the underlying data used for this analysis is TransUnion's Trend Data, a one-of-a-kind database consisting of 27 million anonymous consumer records randomly sampled every quarter from TransUnion's national consumer credit database. Each record contains more than 200 credit variables that illustrate consumer credit usage and performance. Since 1992, TransUnion has been aggregating this information at the county, Metropolitan Statistical Area (MSA), state and national levels.
As a global leader in credit and information management, TransUnion creates advantages for millions of people around the world by gathering, analyzing and delivering information. For businesses, TransUnion helps improve efficiency, manage risk, reduce costs and increase revenue by delivering comprehensive data and advanced analytics and decisioning. For consumers, TransUnion provides the tools, resources and education to help manage their credit health and achieve their financial goals. Through these and other efforts, TransUnion is working to build stronger economies worldwide. Founded in 1968 and headquartered in Chicago, TransUnion employs associates in more than 25 countries on five continents. www.transunion.com/business
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