Credit Risk Index Plateaus, Suggesting Improved Consumer Risk Conditions for the US

TransUnion reported that during the fourth quarter of 2009 the Credit Risk Index (CRI) indicated that risk conditions in the U.S. are beginning to moderate. The Credit Risk Index is a statistic developed to measure the changes in average consumer credit risk within various geographies across the nation.

During the fourth quarter of 2009, TransUnion's Credit Risk Index increased nationally 38 basis points to 129.67 from 129.29 in the third quarter, the smallest increase of this measure since the early stages of the current recession.

"Based upon the Credit Risk Index it appears that we may have possibly reached a plateau for credit risk after five consecutive quarters of significant increases, suggesting that the financial recovery is beginning to take hold as consumers continue to adapt their lifestyle and debt management practices to navigate these difficult economic times," said Chet Wiermanski, global chief scientist at TransUnion.

TransUnion Credit Risk Index - Statistics
Although the Credit Risk Index continued its climb reaching an all-time high at the national level for the fifth consecutive quarter; the growth rate continued to decelerate, as 10 states, predominately located east of the Mississippi river (Alabama, Tennessee, Illinois, Kentucky, District of Columbia, Rhode Island, Vermont, Maine, Alaska, and North Carolina) experienced quarterly declines.

The rate of increase between the third and fourth quarters for the Credit Risk Index was the lowest since the end of 2008, when the nation experienced a 2.61 percent decline from 120.89 to 117.74. On a year-over-year basis, the Credit Risk Index increased 3.92 percent (from 124.79 in the fourth quarter of 2008).

On a state basis, Mississippi continues to rank as the riskiest state, from a credit risk perspective, with a Credit Risk Index of 169.22. It is followed closely by Nevada (167.19) and Texas (164.23). Continuing from the previous quarters, the least risky states are concentrated in New England and the Upper Midwest areas of the country, with North Dakota coming in at 84.76, Minnesota at 91.50 and Vermont at 92.97.

Analysis
"We anticipate the Credit Risk Index will remain flat as consumers continue to take on less bank card debt and as employment conditions improve," said Wiermanski. "The prospect of a decrease in the Credit Risk Index for the first time in more than two years possibly as early as the end of 2010 continues to improve as the economic recovery expands to a greater number of states in the coming months."

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.