Discover Financial Services can currently boast having one of the lowest charge-off rates in the entire credit card industry. Loans get written off the books of credit card issuing companies once they are six months overdue.
The total amount of charge-offs recorded by Discover for August was $50.8 million, or 3.6% of balances on an annualized basis, several sources reported. This is down from the $54.4 million that was charged off in July, or 3.83%. As things stand, the company is currently at its lowest charge-off rate since the start of the economic recession.
Delinquency, otherwise known as late payments, is considered to be a rather reliable indication for what can be expected by way of defaults in the remaining months of 2011 still to come.
The Wall Street Journal reported that Fitch Ratings Company said the amount of delinquencies of 60 days or more decreased to 2.15% in August from 2.46%, thereby marking the 19th consecutive monthly decline.
“U.S. consumer credit quality has improved rapidly since the beginning of the year and delinquency trends bode well for further gains,” said Michael Dean, managing director at Fitch Ratings. “We’re at a point now, however, where seasonal factors will likely temper the pace of further collateral improvements for credit-card” asset-backed securities, according to the Wall Street Journal website.
The Associated Press claimed that the improvements were a result of consumers refocusing their efforts towards reducing their outstanding credit card debt. The Federal Reserve released data which indicated that revolving debt, the majority of which is credit cards, shrank in July to $792.5 billion after creeping up the two months prior. Since its peak in late 2008, the total amount of debt that can be attributed to plastic is more than 17% less, including balances settled by cardholders as well as over $75 billion in write offs since 2009 by card issuing companies.
As Discover reported fewer charge-offs, both Citibank and Bank of America claimed higher losses, according to the Fitch Ratings report.