Credit Card Charge-Offs Could Slow Recovery
Charge-offs are on the rise and could slow the financial recovery…
Financial experts predict that even with recent indications that the U.S. economy may be turning around, people should brace for a bit more bad news. Fitch Ratings predicted that credit card charge-offs would increase significantly during the second quarter of 2009. And according to Standard & Poors, that’s just what is happening. U.S. credit card defaults have deteriorated to the worst level since the agency began tracking the figures in 1992.
Charge-offs happen when a consumer fails to make payments for six months and the credit card company decides that the debt is uncollectable and writes off the outstanding balance as a loss. However, just because the lender deems the money uncollectable the consumer still owes the defaulted balance which negatively impacts their credit.
The statistic of a lender’s charge-offs can be quite confusing when issuers like Capital One announce a drop in defaults in April, only to find out that it was largely due to the way the company processes bankruptcies. Even with an increase volume in bankruptcies, their customers who file for bankruptcy are now charged off within 30 days not the 2 or 3 days that was the previous practice, which resulted in a positive report based on an illusion. However, an honest improvement was seen for loans at least 30 days delinquent that fell slightly for the second straight month from 5.08% to 5.04% in March.
Along the same line, American Express saw defaults jump as the recession deepens and job loss increases. The largest U.S. credit card company, by sales volume, reported its charge-offs climbed from 8.8% to 10.1% in April. However, the rate for loans at least 30 days delinquent, an indicator of future defaults, fell to 4.9% from 5.1%.
* Be sure to visit ASAP to compare all the Best Credit Cards >
