Default Risk Diminishes as Consumer Credit Conditions Improve

The credit bureau ""TransUnion"":http://www.transunion.com says U.S. consumers are less of a credit risk now than they were in 2009 and earlier this year.
[IMAGE] The Chicago-based agency's proprietary ""Credit Risk Index"":http://newsroom.transunion.com/easyir/customrel.do?easyirid=DC2167C025A9EA04&version=live&prid=659511&releasejsp=custom_144 (CRI) declined 117 basis points, or 0.9 percent, between the first and second quarters of 2010. The drop was more than double the decrease observed between the fourth quarter of 2009 and the first quarter of 2010.

TransUnion says this decrease is the second decline in as many quarters and is a harbinger of the moderate improvements in delinquency rates reported by the company in August across all credit sectors.

The CRI is now 5 percent lower than it was a year ago. The index ""is a stronger leading indicator of consumer credit risk and is much more highly correlated to consumer delinquency rates than the average credit score,"" according to TransUnion.

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

[COLUMN_BREAK]

improvement in consumer credit conditions is finally taking root,"" TransUnion said. Only Alaska, Hawaii, Idaho, and North Carolina experienced increases in their consumer credit risk readings.

""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,"" said Chet Wiermanski, global chief scientist at TransUnion.

""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,"" Wiermanski added. ""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.""

TransUnion also analyzed how university cities fared compared to other large cities in their state in terms of consumer credit risk. The company found that cities that were home to a university were 12.5 percent less risky than their same-state counterparts without a college campus.

For mortgages, the average 90-day delinquency rate for university cities was 5 percent, compared to 8.9 percent for the largest cities.

Wiermanski says a relatively stable employment picture and a captive consumer base with disposable income are two reasons driving these results.

TransUnion's analysis sourced from a database of 27 million randomly sampled consumer records.