The amount of credit card defaults (that is, the loans which credit card companies essentially have lost all hope of receiving, otherwise known as “charge-offs”) continues to rise. This is surely a sign of the ever-failing economy: More and more people are buried under ever-increasing credit card debt, and the 9.66%-and-rising default rate is indicative of this fact.
However, even as the credit crisis continues, the delinquency rate (the amount of loans that are more than 60 days late) has begun to fall, according to Fitch Ratings. After five months of increasing delinquencies (reaching record highs in April), the trend is finally reversing.
This can only be seen as good news, according to Michael Dean, Fitch Ratings Managing Director.
When delinquencies fall, it is usually a sign that credit card defaults are also going to fall in the near future. Fewer late payments mean there is less risk of consumers defaulting entirely on their loans.
But a lower default rate is not a guarantee. For example, delinquency rates could just be falling because of the heavier rate of discharged debt, with more defaults to come in the months ahead as more people lose jobs. In a recessionary economic environment, just about anything is possible. Hopefully, however, people are becoming more financially savvy and starting to responsibly pay back their debts.
A note on defaults
The credit card companies look upon families with $30,000+ in credit card bills and months-overdue minimum payments as lost causes. As credit card companies want to focus their attention economically, trying to receive payments from people who will not ultimately have their debt discharged, it makes sense that they would not continue to try to extract payment from these defaulted loans. Defaulted accounts, or charge-offs, are often turned over to debt collection agencies, and these collection accounts can have a severe impact on your credit score.