Charge-offs come down in the month of December for Bank of America

The charge-offs seem to have dipped in the month of December as per the statements issued by Bank of America Corp on Tuesday. The credit card debt that was written off as uncollectible fell to its lowest in December 2010. There was a decline in the number of late payments also and it was indicative of an improvement in consumer credit habits.

Charlotte, N.C. - based Bank of America managed to write off 9.31% of balances on credit cards in December (at an annualized rate) which was down from 9.92% in November.

It is a common practice with card companies to write off loans 180 days past their due date, as this is a point where the banks assume that the balances cannot be collected. The charge-off rate of Bank of America was at its highest at 13.53% (annualized) in December 2009.

Since the last two years, it has been observed by the Federal Reserve that the credit card debts have been falling consistently. This could be due to a combination of factors that includes paying off balances as well as the credit card companies cutting off the credit limit, and writing off the debts that cannot be collected.

In the month of November, there were mostly credit card debts, which were revolving debts that were held by US consumers, which fell to $796.5 billion. This was 18.5% lower than the peak that was reached during the 3rd quarter of 2008 and the lowest since September 2004.

During the second half of 2010, the charge-off rate had peaked to 10.37% of balances (annualized) as per the recent Fed data. It had averaged at 3.82% prior to recession as per the Fed records available.

Competitors of Bank of America such as Chase, Discover Financial and Capital One have reported improvements in charge-off rates on Tuesday.

The late payments (30 days or more) on cards, had also dropped to 5.24% during December when compared to 5.47% during November, which is the lowest delinquency rate that has been reported last year. The delinquencies are taken as an indicator to predict where the charge-offs are headed.

The shares of Bank of America had slipped 35 cents to $14.90 during midday trading. The large bank stocks also reportedly fell during the session after Citigroup Inc. reported the disappointing results in the fourth quarter.

Bryant Park

Bryant Park is a financial consultant for one of the companies listed on Wall Street. He writes on a variety of topics ranging from credit cards to different loans that can be availed by consumers. He holds a bachelor degree in Financial Services from Dartmouth College.