Consumers less of a credit risk as demand sinks

The rate at which consumers had trouble paying down their credit card debt declined by 0.9 percent in the fourth quarter of 2010, according to the latest statistics from the credit monitoring bureau TransUnion. This marked the fourthconsecutive quarter in which consumer credit risk declined, and left the company's Credit Risk Index 3.13 percent lower than it was at the end of 2009.

Overall, 49 states and Washington, D.C., saw declines in the rates at which they struggled with credit card debt, the report said. Wisconsin, the only state that saw an increase in its total risk, is still well below the national average. The states that had the highest risk were Nevada, Mississippi and Texas, while North Dakota and Minnesota had the lowest.

Meanwhile, consumer demand for new credit card accounts continued to fall as well, the report said. The number of inquiries made by consumers dipped 5.7 percent on a year-over-year basis, declining in 42 states and the District of Columbia. Alaska, Vermont and Wyoming had the highest increases in new inquiries, while Florida, Nevada and Virginia saw the steepest declines. However, the year-over-year drop observed in the fourth quarter of 2010 was considerably lower than those between the same periods in 2007 and 2008 (16.5 percent) and 2008 and 2009 (19.3 percent).

"The gradual decline in the Credit Risk Index, coupled with a 5.4 percent decrease in the demand for credit over the previous year, as reflected in TransUnion's Total Inquiry Index, suggests that consumers are relying more on existing credit or switching to cash or debit cards," said Chet Wiermanski, global chief scientist at TransUnion. "While more consumers will have stronger credit profiles making them attractive to credit marketers, the underlying demand for credit appears to still be soft."

Financial institutions are once again loosening restrictions on what type of people they will lend to, but many consumers have also been locked out of the borrowing system entirely thanks to a past history of delinquency and charged off debts that effectively crippled their credit ratings.