Late Credit Card Payments Fall to Pre-Recession Levels

It appears that even in difficult economic times and with unemployment rates high, consumers are still making it a point to pay their credit card bills on time. According to the Associated Press, regulatory filings by the nation's six top credit card issuers are showing that the rate of late payments on credit cards are at pre-recession levels. That bodes well for the future since late payments are usually a precursor to a default down the road. Credit card issuers usually write-off credit card balances if they have not received payment in 180 days.

Big Card Issuers

American Express reported that late payments of 30 days or more affected only 1.6% of credit card balances in May, a rate that is actually lower than what the card issuer experienced before the economic downtown started in late 2007. JPMorgan Chase reported late payments on 2.66% of outstanding balances, a rate not enjoyed since mid-2006. Discover Financial Services, with a delinquency rate of 2.88%, matched the rate it experienced over four years ago.

First Step on Road to Default

The reason that credit card issuers track late payments on such a consistent basis is it is a risk factor for credit card default. Default, of course, is when card holders stop making payments on their credit card balances altogether and leave the credit card issuers holding the bag. With the late payment rates coming in at lower levels across the board, card issuers are hopeful that default rates in the coming months may continue to decline.

According to Michael R. Dean, managing director at Fitch Ratings, "It continues to paint a good picture.” Fitch Ratings is responsible for tracking the securities that are backed by credit card balances. According to Fitch, it expects the second half of 2011 to show declines in both payment delinquency rates and default rates on credit cards.

In the first quarter of this year, default rates across the industry fell to 6.96% from a peak rate of 10.97% hit in the second quarter of 2010, according to Federal Reserve data. Nevertheless, default rates at major banks and card issuers still vary widely. Bank of America has the questionable honor of leading the industry with the highest default rate of 8.03%, while American Express enjoys the lowest rate of 3.2%.

BOA’s current default rate is the same as it was in late 2007. Citibank’s rate of default came in at 7.81% in May and, while still above its pre-recession levels, is down substantially from a recession high of 11.46% a year ago.

Kristie Lorette

Kristie Lorette is an award winning credit specialist and an MBA graduate of Nova Southeastern University. Her lengthy tenure includes service at Merrill Lynch where she oversaw a $300 million dollar portfolio and 16 branches. At Merrill Lynch, Kristie specialized in consumer issues related to credit and mortgages. As a writer and researcher in personal finance, Kristie is also a contributor to Yahoo! Shine, Quizzle.com, Moneysmartlife.com and many other online and print publications.