New lows for charge-off rates for all lenders

[Wednesday, March 16th, 2011]

According to a recent report, there was something common in the top 6 credit card lenders in the country. As per the report all the 6 card lenders including Bank of America, Chase, Discover, Citibank, Capital One and American Express witnessed that the rate at which delinquent credit card debts of customers had to be written off to yearlong lows. Despite these lows, the rates are still quite high compared to the average rates historically and what they were prior to the recession.

The rate of credit card debt that was defaulted, according to data from the Federal Reserve, had hit a high during 2010’s second quarter. It had reached to 10.37% of all outstanding balances according to the report. The same rate was a measly 3.82% in the 2 years before the recession had started. According to some industry experts there are quite a few improvements in recent times, although there is nothing which is really extraordinary or something that will take everyone by surprise.

There are expectations that the rate at which customers’ card debt would be struck off the balance sheets of the lenders would improve further in the future too. One of the major hindrances in this regard, is due to the unemployment rates in the country, which are currently hovering at a staggering 10%.

The lower rates of charge-offs are because of 2 factors according to the industry experts around. One of the more important factors is how the customers’ viewpoint has changed in recent times. They are spending far less on their credit cards and are cutting down on the outstanding balances by making much higher payments very quickly. This is a drastic shift from the way customers looked at credit card bills in the past, prior to recession. Now a lot of credit card customers don’t seem to be very comfortable with the whole idea of having large outstanding balances on their credit card and paying interest on them. The default rates are also possible because of customers who have seen financial problems in the past and are therefore not able to acquire a new credit line at all. This is why lenders are now letting only the most creditworthy of customers to stick to the credit card account to reduce their own losses. About 8 million consumers have stopped using credit card accounts last year for various reasons.

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