Credit-Land Economic Report: Credit Card Charge-Offs Hit All-time Low

August 2011’s data has been gathered and subsequently analyzed. Following that, the credit rating agency Moody’s has announced that the rate of charge-offs reported by credit issuers fell even further, than in previous months to a new low, Business Weeks reports.

SOURCE: Federal Reserve Flow of Funds Accounts of the United States, IMF Global Financial Stability Report October 2008. Goldman Sachs Economics Paper No. 177, FDIC Quarterly Banking Profile, S&P Leverages Commentary & Data, T2 Partners estimates.

This sort of decline has now been occurring for two years in a row now. The percentage of debts written off by banks after being deemed uncollectable is at 6.02.

The numbers released by Moody’s indicate that, in August, a mere 3.04 percent of balances could be categorized as past due for 30 or more days. This results in a good, or low, delinquency rate. In October 2009, the delinquency rate sat at 6.23 percent, but following 22 consecutive months of decline it is now less than half of that figure.

All of this is essentially a reflection on the actions that have been taken by credit card companies since the worst of the nationwide financial crisis. Lenders have been putting an effort towards improving upon their delinquency rates by making their lending standards stricter, while additionally writing bad loans off their books.

This makes it much tougher for people with poor credit to get approved to open a new credit card account, as banks are focused on enticing applicants from the pool of individual with good or excellent credit. The more creditworthy consumers are more appealing to banks because they are likely to spend more but pose little risk for defaulting on their payments.

"Historically low delinquencies in general and high payment rates reflect the improved borrower mix in credit card trusts today," said Moody's assistant vice president Jeffrey Hibbs to Marketwatch.

Moody’s predicts that the charge-off rate will continue to steadily decline through the end of 2012, ultimately falling below 4 percent.

Jennifer Brown

Jennifer Brown, an external business consultant working with a Fortune 500 company, has years of experience to her credit. Despite having a busy schedule through the day, she takes time out to write articles dealing with credit cards, payday loans and other financial aspects. She has completed her Bachelor degree in Financial Services from Columbia University and has been actively involved in various activities for the betterment of society.